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TABLE OF CONTENTS
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
File No. 0-17973
| Filed by the Registrant | ||
Filed by a Party other than the Registrant | ||
Check the appropriate box: | ||
o | Preliminary Proxy Statement | |
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
ý | Definitive Proxy Statement | |
o | Definitive Additional Materials | |
o | Soliciting Material Pursuant to | |
I-LINK INCORPORATED | ||||
(Name of Registrant as Specified In Its Charter) | ||||
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) | ||||
| Payment of Filing Fee (Check the appropriate box): | ||||
ý | No fee required | |||
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11 | |||
| (1) | Title of each class of securities to which transaction applies: N/A | |||
| (2) | Aggregate number of securities to which transaction applies: N/A | |||
| (3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): N/A | |||
| (4) | Proposed maximum aggregate value of transaction: N/A | |||
| (5) | Total fee paid: | |||
o | Fee paid previously with preliminary materials. | |||
o | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |||
(1) | Amount Previously Paid: | |||
| (2) | Form, Schedule or Registration Statement No.: | |||
| (3) | Filing Party: | |||
| (4) | Date Filed: | |||
9775 Business Park Avenue
San Diego, California 92131
October 26, 2003
Dear Stockholder:
It is my pleasure to invite you to I-Link's 2001 annual meeting of stockholders.stockholders (the "Annual Meeting"). We will hold the meeting on Wednesday, September 7, 2001November 26, 2003 at 10:00 a.m. local time at the Marriott Courtyard Hotel, 10701 South Holiday ParkDoubleTree Golf Resort, 14455 Penasquitos Drive, Sandy,
Utah 84070.San Diego, California 92129. In addition to the formal items of business, I will be available at the meeting to answer your questions.
I-Link's Board of Directors has significantly changed the strategic direction of I-Link over the past year. On December 6, 2002, the Board approved the sale of I-Link's unified communication business. I-Link retained all its technology, including patents that have been granted to I-Link with respect to the delivery of telecommunications services over a real-time Internet Protocol communications network, and will continue to explore opportunities to license its technology. The principal operating activities, however, will be conducted by WorldxChange Corp., a wholly-owned subsidiary of I-Link, which acquired the Enterprise Business of RSL COM U.S.A., Inc. on December 10, 2002. In recognition of this new strategic direction, we have moved the corporate headquarters to the offices of WorldxChange in San Diego, California and launched a new marketing initiative using the following logo:
At the Annual Meeting you will be asked to consider and vote on an amendment to I-Link's Articles of Incorporation to change its name to "Acceris Communications Inc." in order to align its name with Acceris brand. You will also be asked to consider and vote on a number of additional proposals, including the election of two Class I directors, a reverse stock split, the approval of a new Stock Option and Appreciation Rights Plan, and an amendment to I-Link's Articles of Incorporation. The actions to be taken at the Annual Meeting are described in detail in the attached Proxy Statement and Notice of Annual Meeting of Stockholders. This booklet includes the notice of annual
meeting and the proxy statement. The proxy statement describes the business that
we will conduct at the meeting, andalso provides information about I-Link.
Please note that only stockholders of record at the close of business on July 23, 2001October 9, 2003 may vote at the meeting.Annual Meeting. Your vote is important. Whether or not you plan to attend the annual meeting,Annual Meeting, please complete, date, sign and return the enclosed proxy card promptly. If you are a stockholder of record and do attend the meeting and prefer to vote in person, you may do so.
We look forward to seeing you at the meeting.
Very truly yours,
Gary J. Wasserson
NOTICE OF 2001 ANNUAL MEETING OF STOCKHOLDERS
logo
| Very truly yours, | ||
Allan Silber Chairman of the Board and Chief Executive Officer and President |
Notice of Annual Meeting of Stockholders
| Date: | November 26, 2003 | |
| Time: | 10:00 a.m. | |
| Place: | DoubleTree Golf Resort, 14455 Penasquitos Drive, San Diego, California, 92129 |
Dear Stockholders:
At our annual meeting of stockholders (the "Annual Meeting") we will ask you to:
- 1.
- Elect two Class
IIII directors each to serve for three years and untilhis successor hastheir successors have been duly elected andqualified and to elect one Class II director to serve for the term of his class, and until his successor has been duly elected andqualified; - 2.
Approve a reverse split of I-Link's common stock, to be implemented in the discretion of the board of directors, if and to the extent that the board of directors deems appropriate to maintain the listing of I-Link's common stock on The Nasdaq SmallCap Market; 3. - Approve an amendment to I-Link's Articles of Incorporation
increasingchanging the name of the Company to "Acceris Communications Inc."; - 3.
- Approve an amendment to I-Link's
authorized numberArticles ofsharesIncorporation deleting Article VI; - 4.
- Approve a 1-for-20 reverse split of I-Link's common
stock (par value $.007 per share) from 150,000,000 to 300,000,000 shares; 4.stock; - 5.
- Approve the
2001I-Link 2003 Stock Option and Appreciation Rights Plan;5. Ratify issuances by I-Link of shares of its common stock in connection with the March 1, 2001 Senior Convertible LoanandSecurity Agreement between Counsel Communications LLC and I-Link and with the April 17, 2001 Agreement and Plan of Merger between WebToTel, Inc. and I-Link; and - 6.
- Transact any other business that may properly be presented at the
annual meetingAnnual Meeting or any adjournment thereof.
If you were a stockholder of record at the close of business on July 23,
2001,October 9, 2003, you may vote at the annual meeting.
By Order of the Board of Directors,
David E. Hardy
SECRETARY
Draper, Utah
August 17, 2001
| By Order of the Board of Directors, | ||
| Stephen Weintraub Secretary | ||
| San Diego, California October 26, 2003 |
i
I-LINK INCORPORATED
PROXY STATEMENT
DATED SEPTEMBER 7, 2001
ANNUAL MEETING OF STOCKHOLDERS
Proxy Statement
Dated October 26, 2003
Annual Meeting of Stockholders
INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
WHY DID YOU SEND ME THIS PROXY STATEMENT?
Why did you send me this proxy statement?
We sent you this proxy statement and the enclosed proxy card because the board of directors of I-Link Incorporated, a Florida corporation (I-Link or the Company), is soliciting your proxy vote at the 2001 Annual Meeting2003 annual meeting of Stockholders.stockholders (Annual Meeting). This proxy statement summarizes the information you need to vote intelligentlyin an informed manner on the proposals to be considered at the annual meeting.Annual Meeting. However, you do not need to attend the annual
meetingAnnual Meeting to vote your shares. Instead you may simply complete, sign and return the enclosed proxy card.
HOW MANY VOTES DO
How many votes do I HAVE?have?
We will be sending this proxy statement, the attached Notice of Annual Meeting and the enclosed proxy card on or about August 23, 2001October 26, 2003 to all stockholders. Stockholders who owned I-Link common stock at the close of business on July 23, 2001 (the "Record Date")October 9, 2003 (Record Date) are entitled to one vote for each share of common stock they held on that date inon all matters properly brought before the annual meeting.Annual Meeting. Similarly, holders of Series N preferred stock are entitled to vote with the common stock, voting together and not as separate classes, on an "as converted" basis.
On the Record Date, the following classes of stock were issued and outstanding, and had the voting powers indicated. Each share of common stock is entitled to one vote, and each share of Series N preferred stock is entitled to approximately 800 votes.
| Class of Stock | Shares Outstanding | Equivalent Votes | ||
|---|---|---|---|---|
| Common Stock | 116,669,547 | 116,669,547 | ||
| Series N preferred stock | 619 | 495,200 | ||
| Total Votes at Annual Meeting of Stockholders: | 117,164,747 |
What proposals will be addressed at the Annual Meeting?
We will address the following proposals at the annual meeting:
Annual Meeting:
- 1.
- Election of two Class
IIII directors each to serve for three years and untilhis successor hastheir successors have been duly elected andqualified and election of one Class II director to serve for the term of his class and until his successor has been duly elected andqualified; - 2.
Approval of a reverse split of I-Link's common stock, to be implemented in the discretion of the board of directors, if and to the extent that the board of directors deems appropriate to maintain the listing of I-Link's common stock on The Nasdaq SmallCap Market; 3. - Approval of an amendment to I-Link's Articles of Incorporation
increasingchanging the name of the Company to "Acceris Communications Inc."; - 3.
- Approval of an amendment to I-Link's
authorized numberArticles ofsharesIncorporation deleting Article VI; - 4.
- Approval of a 1-for-20 reverse split of I-Link's common
stock (par value $.007 per share) from 150,000,000 to 300,000,000 shares; 4.stock; - 5.
- Approval of the
20012003 Stock Option and Appreciation Rights Plan;5. Ratification of issuances by I-Link of shares of its common stock in connection with the March 1, 2001 Senior Convertible LoanandSecurity Agreement between Counsel Communications LLC and I-Link and with the April 17, 2001 Agreement and Plan of Merger between WebToTel, Inc. and I-Link; and - 6.
- The transaction of such other business as may properly come before the meeting or any adjournment thereof.
WHY WOULD THE ANNUAL MEETING BE POSTPONED?
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Why would the Annual Meeting be postponed?
The annual meetingAnnual Meeting will be postponed if a quorum is not present on September 7, 2001.November 26, 2003. If shares representing more than half of all50% of the shares of stockvotes entitled to votebe cast at the annual meetingAnnual Meeting are present in person or by proxy, a quorum will be present and business can be transacted. If a quorum is not present, the annual
meetingAnnual Meeting may be postponed to a later date when a quorum is obtained. Abstentions and broker non-votes are counted for purposes of determining the presence of a quorum for the transaction of business but are not counted as an affirmative vote for purposes of determining whether a proposal has been approved.
HOW DO
How do I VOTE IN PERSON?vote in person?
If you plan to attend the annual meetingAnnual Meeting on September 7, 2001,November 26, 2003, or at a later date if it is postponed, at the Marriott Courtyard, 10701 South Holiday ParkDoubleTree Golf Resort, 14455 Penasquitos Drive, Sandy, Utah 84070San Diego, California 92129 and vote in person, we will give you a ballot when you arrive. However, if your shares are held in the name of your broker, bank or other nominee, you must bring a power of attorney executed by the broker, bank or other nominee that owns the shares of record for your benefit, authorizing you to vote the shares.
HOW DO
How do I VOTE BY PROXY?vote by proxy?
Whether you plan to attend the annual meetingAnnual Meeting or not, we urge you to complete, sign and date the enclosed proxy card and return it promptly in the envelope provided. Returning the proxy card will not affect your right to attend the annual meetingAnnual Meeting and vote in person.
If you properly fill in your proxy card and send it to us in time to vote, your "proxy" (one of the individuals named on your proxy card) will vote your shares as you have directed. If you sign the proxy card but do not make specific choices, your proxy will vote your shares as recommended by the boardBoard of directorsDirectors as follows:
- "FOR"
- •
- "For" the election of
thetwo ClassIII Director nomineesI directors each to serve for three years andthe Class II Director nominee; - "FOR" approval of a reverse split of I-Link's common stock, to be implemented in the discretion of the board of directors, ifuntil their successors have been duly elected andto the extent that the board of directors deems appropriate to maintain the listing of I-Link's common stock on The Nasdaq SmallCap Market; - "FOR"qualified; - •
- "For" approval of an amendment to I-Link's Articles of Incorporation
increasingchanging the name of the Company to "Acceris Communications Inc."; - •
- "For" approval of an amendment to I-Link's
authorized numberArticles ofsharesIncorporation deleting Article VI; - •
- "For" approval of a 1-for-20 reverse split of I-Link's common
stock (par value $.007 per share) from 150,000,000 to 300,000,000 shares; - "FOR"stock; and - •
- "For" approval of the
20012003 Stock Option and Appreciation RightsPlan; and - "FOR" ratification of issuances by I-Link of shares of its common stock in connection with the March 1, 2001 Senior Convertible Loan and Security Agreement between Counsel Communications LLC and I-Link and with the April 17, 2001 Agreement andPlanof Merger between WebToTel, Inc. and I-Link.
If any other matter is presented, your proxy will vote in accordance with his best judgment. At the time this proxy statement went to press, we knew of no matters that needed to be acted on at the annual meetingAnnual Meeting other than those discussed in this proxy statement.
MAYProxy Statement.
May I REVOKE MY PROXY?revoke my proxy?
If you give a proxy, you may revoke it at any time before it is exercised. You may revoke your proxy in any one of three ways:
-
- •
- You may send in another proxy with a later date.
2- - •
- You may notify I-Link in writing (by you or your attorney authorized in writing, or if the stockholder is a corporation, under its corporate seal, by an officer or attorney of the corporation) at our principal executive offices, before the
annual meeting,Annual Meeting, that you are revoking your proxy.-
2
- •
- You may vote in person at the
annual meeting. WHERE ARE I-LINK'S PRINCIPAL EXECUTIVE OFFICES? OurAnnual Meeting.
Where are I-Link's principal executive offices?
We have relocated our principal executive offices are located at 13751 South Wadsworthto 9775 Business Park Drive, Draper, Utah 84020.Avenue, San Diego, California 92131. Our telephone number is (801) 576-5000.
WHAT VOTE IS REQUIRED TO APPROVE EACH PROPOSAL?
PROPOSAL(858) 547-5700.
What vote is required to approve each proposal?
Proposal 1: ELECTION OF DIRECTORS.Election of Directors.
A plurality of votes cast is required to elect director nominees. A nominee who receives a "plurality" means he has received more votes than any other nominee for the same director's seat. There are two nominees for the two Class III seats, and one nominee for the one Class II seat.I seats. In the event there
are no other nominations are received, a simple majority of the votes castmanagement's nominees will suffice to elect each of the management's nominees.be elected upon receiving one or more votes. All shares of I-Link's common stock and the Series N preferred stock, voting on an as-converted basis and voting as a single class, will be entitled to vote. So, if you do not vote for the nominee, or you indicate "withhold authority to vote" for the nominee on your proxy card, your vote will not count either "for" or "against" the nominee.
PROPOSAL
Proposal 2: APPROVAL OF A REVERSE SPLIT OF I-LINK'S COMMON STOCK, TO BE
IMPLEMENTED IN THE DISCRETION OF THE BOARD OF DIRECTORS, IF AND TO THE EXTENT
THAT THE BOARD OF DIRECTORS DEEMS APPROPRIATE TO MAINTAIN THE LISTING OF
I-LINK'S COMMON STOCK ON THE NASDAQ SMALLCAP MARKET.Approval of an amendment to I-Link's Articles of Incorporation changing the Company's name to "Acceris Communications Inc."
All shares of I-Link's common stock and the Series N preferred stock voting on an as-converted basis and voting as a single class, will be entitled to vote. The affirmative vote of a majority of the votes entitled to be cast by the holders of the outstanding shares of common stock and the Series N preferred stock is required for approval of an amendment of the Articles of Incorporation changing the Company's name to "Acceris Communications Inc." Therefore, since a majority of all votes entitled to be cast is required, any shares that are not voted, including shares represented by a proxy which is marked "abstain," will, in effect, count "against" Proposal 2.
As of the Record Date, Counsel Communications LLC, a Delaware limited liability company formerly known as Counsel Springwell Communications LLC (Counsel Communications), holds 81,775,546 shares of I-Link's common stock, representing approximately 70% of the votes entitled to be cast on this proposal. Counsel Communications has informed I-Link that it intends to vote such shares FOR the amendment to change the name of the Company to Acceris Communications Inc. In such case, the amendment will be approved.
Upon approval by the required stockholder vote, the amendment will become effective upon the filing of the Articles of Amendment to the Articles of Incorporation with the Department of State of the State of Florida, which filing is anticipated to occur during or shortly following the Annual Meeting. A copy of the Amendment to the Articles of Incorporation is included as Appendix D to this proxy statement.
Proposal 3: Approval of an amendment to I-Link's Articles of Incorporation deleting Article VI.
All of the outstanding shares of I-Link entitled to vote in an election of directors,i.e. the outstanding shares of common stock and the Series N preferred stock, voting on an as-converted basis and voting as a single class, will be entitled to vote. The approval of an amendment to the Articles of Incorporation to delete Article VI must receive the affirmative vote of at least 67% of the votes entitled to be cast by the holders of I-Link's common stock and Series N preferred stock. Therefore, since 67% of all votes entitled to be cast is required, any shares that are not voted, including shares represented by a proxy which is marked "abstain," will, in effect, count "against" Proposal 3.
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Counsel Communications has also informed I-Link that it intends to vote its shares FOR the amendment to delete Article VI of the Articles of Incorporation. In such case, the amendment will be approved.
Upon approval by the required stockholder vote, the amendment will become effective upon the filing of the Articles of Amendment to the Articles of Incorporation with the Department of State of the State of Florida, which filing is anticipated to occur during or shortly following the Annual Meeting.
Proposal 4: Approval of a 1-for-20 reverse stock split of I-Link's common stock.
All shares of I-Link's common stock and the Series N preferred stock, voting on an as-converted basis and voting as a single class, will be entitled to vote. Under the existing provisions of I-Link's Articles of Incorporation, the approval of a 1-for-20 reverse split of I-Link's common stock to be implemented in
the discretion of the board of directors, if and to the extent that the board of
directors deems appropriate to maintain the listing of I-Link's common stock on
The Nasdaq SmallCap Market(Reverse Stock Split) must be approved by (a) a vote of at least the majority of the holders of I-Link's issued and outstanding common stock and the Series N preferred stock held by stockholders other than officers, directors, and those persons who hold five percent or more of I-Link's outstanding common stock, and (b) a vote of a majority of shares issued and outstanding of I-Link common stock including the Series N preferred stock held by I-Link's officers, directors, and those persons who hold five percent or more of I-Link's outstanding common stock. Therefore,If Proposal 3 of this Proxy Statement is approved and the Articles of Incorporation are amended to delete Article VI prior to the vote on Proposal 4, then only the approval of the majority of I-Link's issued and outstanding common stock and the Series N preferred stock will be required. In any event, since a majority of all outstanding voting shares is required, any shares that are not voted, including shares represented by a proxy which is marked "abstain," will, in effect, count "against" Proposal 2.
Upon4.
Counsel Communications has also informed I-Link that it intends to vote its shares FOR approval byof the required stockholder vote and determination by the
board of directors thatReverse Stock Split. In such case, the reverse stock split is in the best interests of
I-Link and its stockholders, the amendment will become effective upon the filing
of the Articles of Amendment to the Articles of Incorporation with the
Department of State of the State of Florida, which filing is anticipated to
occur upon a date determined by the board of directors after the stockholder
vote on this proposal.
PROPOSAL 3: APPROVAL OF AN AMENDMENT TO I-LINK'S ARTICLES OF INCORPORATION
INCREASING I-LINK'S AUTHORIZED NUMBER OF SHARES OF COMMON STOCK (PAR VALUE $.007
PER SHARE) FROM 150,000,000 TO 300,000,000 SHARES.
All shares of I-Link's common stock and the Series N preferred stock, voting
on an as-converted basis and voting as a single class, will be entitled to vote.
The affirmative vote of a majority of the outstanding shares of common stock and
the Series N preferred stock is required for approval of an
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amendment of the Articles of Incorporation increasing the authorized number of
shares of common stock, par value $.007 per share, from 150,000,000 to
300,000,000 shares. Therefore, since a majority of all outstanding voting shares
is required, any shares that are not voted, including shares represented by a
proxy which is marked "abstain," will, in effect, count "against" Proposal 3.approved.
Upon approval by the required stockholder vote, the amendment will become effective upon the filing of the Articles of Amendment to the Articles of Incorporation with the Department of State of the State of Florida, which filing is anticipated to occur onduring or about September 10, 2001.
PROPOSAL 4: APPROVAL OF THE 2001 STOCK OPTION AND APPRECIATION RIGHTS PLAN.shortly following the Annual Meeting. A copy of the Articles of Amendment of the Articles of Incorporation is included as Appendix D to this proxy statement.
Proposal 5: Approve the 2003 Stock Option and Appreciation Rights Plan.
All shares of I-Link's common stock, including the Series N preferred stock voting on an as-converted basis and voting as a single class, will be entitled to vote. The affirmative voteholders of a majority of the votes cast is required to
approve Proposal 4. Therefore, any shares that are not voted, including shares
represented by a proxy which is marked "abstain," will not count either "for" or
"against" Proposal 4.
PROPOSAL 5: RATIFICATION OF ISSUANCES BY I-LINK OF ITS COMMON STOCK IN
CONNECTION WITH THE MARCH 1, 2001 SENIOR CONVERTIBLE LOAN AND SECURITY AGREEMENT
BETWEEN COUNSEL COMMUNICATIONS LLC AND I-LINK AND WITH THE APRIL 17, 2001
AGREEMENT AND PLAN OF MERGER BETWEEN WEBTOTEL, INC. AND I-LINK.
All shares of I-Link's common stock, including the Series N preferred stock
voting on an as-converted basis and voting as a single class, will be entitled
to vote. The affirmative vote of a majority of the votes cast is required to approve Proposal 5. Therefore, any shares that are not voted, including shares represented by a proxy, which is marked "abstain," will not count either "for" or "against" Proposal 5.
ARE THERE ANY DISSENTERS' RIGHTS OF APPRAISAL?
The board
Counsel Communications has informed I-Link that it intends to vote its shares in favor of directorsapproval of the 2003 Stock Option and Appreciation Rights Plan. In such case, the 2003 Stock Option and Appreciation Rights Plan will be approved. A copy of the 2003 Plan is included as Appendix E to this proxy statement.
Are there any dissenters' rights of appraisal?
Except for Proposal 3, the Board of Directors of I-Link has not proposed any action for which the laws of the State of Florida, the Articles of Incorporation or By-laws of I-Link provide a right of a stockholder to dissent and obtain payment for shares. WHO BEARS THE COST OF SOLICITING PROXIES?
I-Link will bearUnder Proposal 3, I-Link's stockholders have a right to dissent in the event the deletion of Article VI of the Articles of Incorporation is approved, and to receive the "fair value" of their shares upon compliance with the requirements of the Florida
4
Business Corporation Act (Florida Act). These rights are explained in detail in the Proposal 3 discussion in the section entitled "Dissenters' Rights" which begins on page 35 of this Proxy Statement. The dissenters' rights provisions of the Florida Act are included as Appendix C to this Proxy Statement. We urge you to read the "Dissenters' Rights" discussion of this Proxy Statement and the attached provisions of the Florida Act if you wish to exercise your dissenters' rights with respect to Proposal 3.
Who bears the cost of soliciting proxies?
Under the terms and provisions of the Amended and Restated Debt Restructuring Agreement by and among I-Link, Counsel Corporation and Counsel Communications dated October 15, 2002 (Amended Debt Restructuring Agreement) described in detail in Proposal 3 of this Proxy Statement, Counsel Communications will reimburse I-Link for all costs of soliciting proxies in the accompanying form and
will reimburse brokerage firms and others for expenses involved in forwarding
proxy materials to beneficial owners or soliciting their execution.
HOW CANconnection with this Proxy Statement.
How can I OBTAIN ADDITIONAL INFORMATION REGARDING I-LINK?obtain additional information regarding I-Link?
I-Link is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (Exchange Act), which requires that I-Link file reports, proxy statements and other information with the Securities and Exchange Commission (SEC). The SEC maintains a website on the Internet that contains reports, proxy and information statements and other information regarding registrants, including I-Link, that file electronically with the SEC. The SEC's website address is www.sec.gov. In addition, I-Link's Exchange Act filings may be inspected and copied at the public reference facilities of the SEC located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549; and at the SEC's regional offices at Citicorp Center, 500 West Madison Street, Room 1400, Chicago, IL 60661, and at 7 World Trade Center, 13th Floor,233 Broadway, New York, NY 10048.10279. Copies of the material may also be obtained upon request and payment of the appropriate fee from the Public Reference Section of the SEC located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549.
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INFORMATION ABOUT I-LINK STOCK OWNERSHIP
WHICH STOCKHOLDERS OWN AT LEAST
Which stockholders own at least 5% OF I-LINK?of I-Link?
The common stock and the Series N preferred stock, which votes on an as-converted basis with the common stock, constitute the only voting securities of I-Link. As of the Record Date, each share of Series N preferred stock is convertible, at the option of its holder, into approximately 800 shares of common stock. The following table shows, as of the Record Date and to the best of our knowledge, all persons we know to be "beneficial owners" of more than 5% of the common stock, or "beneficial owners" of a sufficient number of shares of Series N preferred stock to be converted into at least 5% of the common stock. On the Record Date, there were 112,600,636116,669,547 shares of common stock issued and outstanding, 9,249 shares of non-voting Class C preferred stock issued and
outstanding and 769619 shares of Series N preferred stock issued and outstanding.
| Name and address Of owner(1) | Number of shares Beneficially owned | % of common stock beneficially owned(2) | |||
|---|---|---|---|---|---|
| Counsel Communications, LLC One Landmark Square Suite 315 Stamford, CT 06901 | 213,787,056 | (3) | 86 | % |
- (1)
- Unless noted, all of such shares of common stock are owned of record by each person or entity named as beneficial owner and such person or entity has sole voting and dispositive power with respect to the shares of common stock owned by each of them.
5
- (2)
- As to each person or entity named as beneficial owners, such person's or entity's percentage of ownership is determined by assuming that any options or convertible securities held by such person or entity which are exercisable or convertible within 60 days from the date hereof have been exercised or converted, as the case may be.
- (3)
- Includes 61,966,057 shares of I-Link's common stock issued upon conversion of Series M and N redeemable preferred stock in March 2001 which were obtained from Winter Harbor L.L.C. on March 7, 2001, based on information included in a Schedule 13D filed by Counsel Communications on March 13, 2001,
andwhich filing was subsequently amendedby Counseland filed with the SEC on May 2, 2001. Also includes21,983,52038,339,188 shares of I-Link's common stock issuable upon conversion of a convertible promissory note in the principal amountand(and including accruedinterestinterest) of$12,310,771$14,987,172 loaned to I-Link as ofthe Record Date,October 9, 2003, at the conversion price of$0.56$0.39 per share, under the terms of the Senior Convertible Loan and Security Agreement, dated March 1, 2001, as amended on May 8, 2001 (Loan Agreement). Under the terms of the Loan Agreement, Counsel Communications may convert the aggregate principal amount and interest loaned to I-Link into shares of I-Link's common stock.On May 8, 2001 the Loan Agreement was amended to increase the total principal amount by $2,000,000 to permit I-Link to borrow up to a total of $12,000,000.Also includes 17,434,489 shares of I-Link's common stock issued on April 17, 2001 to Counsel Communications under the terms of the Agreement and Plan of Merger, dated April 17, 2001.AsAlso includes 93,672,322 shares of I-Link's common stock issuable upon conversion of the loan from Counsel Communications to I-Link, which loan is convertible into the shares of I-Link's common stock at the conversion rate of $0.084 per share, which rate represented the average closing price of I-Link's common stock for 20 trading days preceding the date of the purchase agreement by and between Counsel Communications and RSL COM U.S.A., Inc. (see Proposal 3 of thisrevised preliminary proxy statement,Proxy Statement for additional information on this loan and transaction). Also includes 2,375,000 common stock shares of I-Link previously held in escrow in accordance with the terms and provisions of a certain Securities Purchase Agreement by and between Counselhas not communicated its intent regarding its vote on anyCorporation and Winter Harbor LLC dated March 1, 2001.and released to Counsel Corporation in accordance with the terms and provisions ofthe matters to be considereda certain Agreement by and between Counsel Corporation and Winter Harbor LLC dated August 29, 2003. The beneficial ownership figure excludes approximately 171,300,000 (as of October 9, 2003) shares issuable if Proposal 3 is approved by the stockholders at theannual meeting. HOW MUCH STOCK IS OWNED BY DIRECTORS AND EXECUTIVE OFFICERS?Annual Meeting. The issuance of shares under the Amended Debt Restructuring Agreement would also cause a reset to the conversion price of the convertible promissory note ($14,987,172 as of October 9, 2003) referred to above, from $0.39 to approximately $0.31 which would result in an additional 10,325,000 shares of common stock being issued, which shares have also been excluded.
How much stock is owned by directors and executive officers?
The following table shows, as of the Record Date, the common stock and any preferred stock owned by each director and executive officer. As of the Record Date, all of the present directors, as a group of sixeight persons, own beneficially 2,878,094539,429 shares (a beneficial ownership of 2.6%less than 1%) and all
6
of our
5
seven14 persons, own beneficially 3,963,980539,429 shares (a beneficial ownership of 3.4%less than 1%) of our common stock.
NAME AND ADDRESS OF NUMBER OF SHARES % OF COMMON STOCK
BENEFICIAL OWNER(1) TITLE OF CLASS BENEFICIALLY OWNED BENEFICIALLY OWNED(2)
- ------------------- -------------- ------------------ ---------------------
David R. Bradford......................... Common Stock 115,000(3) *
John W. Edwards........................... Common Stock 2,068,000(3) 1.8%
David E. Hardy............................ Common Stock 1,085,886(3) *
Samuel L. Shimer.......................... Common Stock 14,167(3)
Henry Y.L. Toh............................ Common Stock 287,802(4) *
Hal B. Heaton, Ph.D....................... Common Stock 53,958(3) *
Gary J. Wasserson......................... Common Stock 339,167(3) *
All Executive Officers and Directors as a
Group (7 people)........................ Common Stock 3,963,980(3) 3.4%
- ------------------------
| Name and Address of Beneficial Owner(1) | Number of Shares Beneficially Owned | % of Common Stock Beneficially Owned(2) | |||
|---|---|---|---|---|---|
| Ralph Brandifino | 0 | (14) | * | % | |
| Gary M. Clifford | 0 | (3) | * | % | |
| James Ducay | 0 | (4) | * | % | |
| Hal B. Heaton | 123,958 | (5) | * | % | |
| Kenneth L. Hilton | 0 | (11) | * | % | |
| Barbara Jamaleddin | 0 | (12) | * | % | |
| Kelly Murumets | 0 | (6) | * | % | |
| Albert Reichmann | 49,548 | (5) | * | % | |
| Samuel L. Shimer | 0 | (7) | * | % | |
| Allan C. Silber | 0 | (8) | * | % | |
| Henry Y.L. Toh | 340,594 | (9) | * | % | |
| John R.Walter | 25,329 | (5) | * | % | |
| Stephen A. Weintraub | 0 | (15) | * | % | |
| Gary J. Wasserson | 0 | (10) | * | % | |
| All Executive Officers and Directors as a Group (14 people) | 539,429 | (13) | * | % |
- *
- Indicates less than one
percent.percent - (1)
- Unless otherwise noted, all listed shares of common stock are owned of record by each person or entity named as beneficial owner and
suchthat person or entity has sole voting and dispositive power with respect to the shares of common stock owned by each of them. All addresses are c/o I-Link Incorporated unless otherwise indicated. - (2)
- As to each person or entity named as beneficial
owner,owners, that person's or entity's percentage of ownership is determined based on the assumption that any options or convertible securities held by such person or entity which are exercisable or convertible within 60 daysfrom July 23, 2001have been exercised or converted, as the case may be. - (3)
- Mr. Clifford is the Chief Financial Officer of Counsel Corporation, the parent corporation and majority owner of interest in Counsel Communications. At the December 6, 2002 meeting of the Board of Directors of I-Link, Mr. Clifford was appointed to the office of Vice President of Finance of I-Link. At the Board's February 12, 2003 meeting, Mr. Clifford was appointed Chief Financial Officer of I-Link.
- (4)
- Mr. Ducay is the President of Acceris Communications Solutions, a division of WorldxChange Corp., a wholly-owned subsidiary of I-Link (WorldxChange).
- (5)
- Represents shares of common stock issuable
upon exercise ofpursuant to options and warrants.(4) - (6)
- Ms. Murumets is Executive Vice President of Counsel Corporation. At the December 6, 2002 meeting of the Board of Directors of I-Link, Ms. Murumets was appointed to the office of Executive Vice President of I-Link. At the February 12, 2003 meeting of the Board of Directors of I-Link, Ms. Murumets was appointed a director of I-Link.
- (7)
- Mr. Shimer is a managing director of Counsel Corporation and was appointed as a Senior Vice President, Mergers & Acquisitions and Business Development of I-Link effective February 12, 2003. Mr. Shimer is also a director of Counsel Communications and I-Link.
7
- (8)
- Allan C. Silber is the Chairman, Chief Executive Officer and a holder of more than 10% of shares of Counsel Corporation. Mr. Silber was elected to I-Link's Board of Directors in September 2001 and became Chairman in November 2001. Mr. Silber was appointed Chief Executive Officer and President of I-Link in December 2002 to serve in such capacity at the discretion of the Board of Directors and until the latter appoints a successor officer. Mr. Silber disclaims beneficial ownership of the shares of I-Link's common stock beneficially owned by Counsel Corporation via its majority ownership of Counsel Communications.
- (9)
- Represents shares of common stock issuable
upon exercisepursuant to options. Does not include shares held of record by Four M International, Ltd., of which Mr. Toh is a director. Mr. Toh disclaims any beneficial ownership ofthesesuch shares.DO ANY OF THE OFFICERS AND DIRECTORS HAVE AN INTEREST IN THE MATTERS TO BE ACTED UPON? - (10)
- Mr. Wasserson is a director of Counsel Communications and I-Link and President of Acceris Communications Technologies, Inc., a wholly-owned subsidiary of I-Link.
- (11)
- Mr. Hilton is the Chief Executive Officer of Acceris Communications Partners, a division of WorldxChange.
- (12)
- Ms. Jamaleddin is a Senior Vice President of Acceris Communications Partners, a division of WorldxChange.
- (13)
- Represents 539,429 of shares of common stock that may be obtained pursuant to options and warrants exercisable within 60 days of the date hereof.
- (14)
- Mr. Brandifino is the Chief Financial Officer and Treasurer of WorldxChange.
- (15)
- Mr. Weintraub is Senior Vice President and Secretary of Counsel Corporation. At the December 6, 2002 meeting of the Board of Directors of I-Link, Mr. Weintraub was appointed Senior Vice President and Secretary.
Do any of the officers and directors have an interest in the matters to be acted upon?
Under the terms and provisions of the Amended Debt Restructuring Agreement, I-Link's Board of Directors is required to recommend approval and adoption of Proposal 3 of this Proxy Statement. Messrs. Silber, Shimer and Wasserson are members of the Board of Directors of Counsel Communications; Mr. Silber is a member of the Board of Directors of Counsel Corporation. Counsel Communications and Counsel Corporation are interested in the outcome of Proposal 3. To the extent any officers or directors of I-Link are holders of I-Link's securities, their interest in the outcome of the Proposal 24 would be the same (on a pro-rata basis) as any other stockholder. I-Link's officers and directors have an interest in the outcome of Proposal 45 as that Proposal concerns the adoption of 20012003 Stock Option and Appreciation Rights Plan. (See Proposal 45 discussion for a more detailed description of the terms and provisions of the 20012003 Stock Option and Appreciation Rights Plan). ToOther than in such capacities, no directors or officers, to the best of I-Link's knowledge, no directors or officers have an interest, direct or indirect, in any of the other matters to be acted upon.
DID DIRECTORS, EXECUTIVE OFFICERS AND GREATER-THAN-10% STOCKHOLDERS COMPLY WITH
SECTION
Did directors, executive officers and greater-than-10% stockholders comply with Section 16(a) BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS IN 2000?beneficial ownership reporting requirements in 2002?
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than ten percent of any publicly tradeda registered class of our equity securities, to file reports of ownership and changes in ownership of equity securities of I-Link with the SEC. Officers, directors, and greater than ten percent stockholders are required by the SEC regulation to furnish I-Linkus with copies of all Section 16(a) forms that they file.
Based solely upon a review of Forms 3 and Forms 4 furnished to I-Linkus pursuant to Rule 16a-3 under the Exchange Act during theour most recent fiscal year, and Forms 5to I-Link's knowledge, all reporting persons
8
complied with respect to its most recent fiscal year, we believe that all such forms required to be filed pursuant toapplicable filing requirements of Section 16(a) of the Securities Exchange Act were timely filed,of 1934, as necessary, byamended, with the officers, directors, and security
holders requiredfollowing exceptions: A. Silber, K. Murumets, G. Clifford, S. Weintraub, J. Walter, K. Hilton, J. Ducay. Each of the foregoing persons inadvertently failed to file the same during the fiscal year ended December 31,
2000.
6
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND EXECUTIVE OFFICERS
Thepromptly his or her respective Forms 3 upon his or her appointments as officers or directors and executive officers of I-Link are:
or its subsidiaries in December 2002. As of the date of this Proxy Statement, the foregoing reporting persons have regained compliance with Section 16(a) reporting requirements.
NAME AGE TITLE
- ---- -------- ------------------------------------------------
Gary J. Wasserson................... 45 President, Chief Executive Officer, and Director
John W. Edwards..................... 46 Chairman of the Board and Director
David E. Hardy...................... 48 Senior Vice President, Secretary and General
Counsel
Henry Y.L. Toh...................... 43 Director
David R. Bradford................... 50 Director
Hal B. Heaton....................... 50 Director
Samuel L. Shimer.................... 37 Director
Allan C. Silber..................... 52 Director Nominee
Norman Chirite...................... 40 Director Nominee
Albert Reichmann.................... 72 Director Nominee
Directors and Executive Officers
I-Link's Articles of Incorporation provide that the boardBoard of directorsDirectors shall be divided into three classes, and that the total number of directors shall not be less than five norbut no more than nine. Each director shall serve a term of three years. At the December 6, 2002 meeting, the Board of Directors of I-Link resolved, among other items, to expand the size of the Board of Directors by adding one seat to the existing Board of Directors and to appoint Mr. John Walter to the Board of Directors to serve as a Class III director. At the February 12, 2003 Board of Directors meeting, the Board appointed Kelly Murumets to fill in the vacancy created by the resignation of Norman Chirite. The boardBoard of directorsDirectors currently consists of sixeight members: two Class I Directors (Messrs. WassersonShimer and Shimer)Wasserson), twothree Class II Directors (Messrs. Toh, Heaton and Heaton)Silber), and twothree Class III Directors (Messrs. EdwardsReichmann and Bradford)Walter and Ms. Murumets). Messrs. Chirite and Reichmann,Mr. Shimer, a Class I director nominee, is standing for re-election at the Class III
director nominees, areAnnual Meeting. Mr. Weintraub is standing for election for a three-year term at the annual
meeting. TheAnnual Meeting. If elected, Mr. Weintraub shall serve as a Class I director on the Board of Directors of I-Link. Messrs. Shimer and Wasserson will stand for
re-election in 2002 and the Class II Directors, Messrs. Toh and Heaton, in 2003.
Mr. Silber, the Class II director nominee, is standing for election at the
annual meeting. Mr. Samuel L. Shimer and Mr. Gary J. Wasserson were appointed on April 15, 2001 to fill two vacancies of the Class I Directors created by the resignation in 2001 of a former director and an unfilled board seat. Messrs. Bradford and EdwardsMr. Wasserson will not stand for re-election at the annual
meeting.Annual Meeting.
Biographical information with respect to the present executive officers, directors, and directors of I-Linkkey employees are set forth below. There are no family relationships between any present executive officers orand directors.
GARY J. WASSERSON, President, Chief Executive Officer, and Director.
Mr. Wasserson was appointed by the board
| Name | Age(1) | Title | ||
|---|---|---|---|---|
| Allan C. Silber | 54 | Chairman of the Board and Director, Chief Executive Officer and President | ||
| Hal B. Heaton | 52 | Director | ||
| Albert Reichmann | 72 | Director | ||
| Samuel L. Shimer | 39 | Director and Senior Vice President, Mergers & Acquisitions and Business Development | ||
| Henry Y.L. Toh | 45 | Director | ||
| John R. Walter | 55 | Director | ||
| Gary J. Wasserson | 45 | Director and President of Acceris Communications Technologies, Inc. | ||
| Ralph Brandifino | 58 | Chief Financial Officer and Treasurer of WorldxChange | ||
| Gary M. Clifford | 34 | Vice President of Finance and Chief Financial Officer | ||
| James Ducay | 44 | President, Acceris Communications Solutions, a division of WorldxChange | ||
| Kenneth L. Hilton | 50 | Chief Executive Officer of Acceris Communications Partners, a division of WorldxChange | ||
| Barbara Jamaleddin | 56 | Senior Vice President of Acceris Communications Partners, a division of WorldxChange | ||
| Stephen Weintraub | 55 | Senior Vice President and Secretary | ||
| Kelly Murumets | 39 | Director, Executive Vice President |
- (1)
- As of
directors as a Class I Director on April 15, 2001 to fill a board vacancy. From 1999 to the present he has been President and Chief Executive Officer of Counsel Communications. From 1997 to 1999, he was President and Chief Executive Officer of Call Sciences-TM-/Virtel-TM-December 31, 2002
9
Allan C. Silber, a major provider of enhanced telecommunications
services deliverable over global intelligent networks. From 1992 to 1997, he is
one of the founders of the Pre-Paid Calling Card Industry and served as Chief
Executive Officer of Global Links/GTS, a company instrumental in creating the
calling card industry trade association and its regulatory initiatives within
the industry. Mr. Wasserson holds a Bachelor's degree from Babson College.
JOHN W. EDWARDS, Chairman of the Board and Director. Mr. Edwards was
selected to fill a vacancy on the board of directors as a Class III Director, in
June 1996. He was elected Chairman of the Board in August 1998. Mr. Edwards was
appointed Chief Executive Officer of I-Link on September 30, 1996, and
re-appointed President in January, 2001. Mr. Edwards resigned as Chief Executive Officer and President on May 1, 2001.President. Mr. Edwards served as President and a
director of Coresoft, Inc., a software company developing object-oriented
computer solutions for small businesses from September 1995 to April 1996.
During the period August 1988 through July 1995, Mr. Edwards served in a number
of
7
executive positions with Novell, Inc., a software company providing networking
software, including Executive Vice President of Strategic Marketing, Executive
Vice President of the Appware and Desktop Systems Groups and Vice President of
Marketing of the NetWare Systems Group. Mr. EdwardsSilber was involved in the
development of the NetWare 386 product line. Until May 1996, he was a visiting
faculty member at the Marriott School of Management at Brigham Young University.
Mr. Edwards received a Bachelor's degree in Computer Science from Brigham Young
University. Mr. Edwards was re-electedelected to the boardBoard of directorsDirectors as a Class III
Director at the 1997 Annual Meeting.
DAVID E. HARDY, Senior Vice President, General CounselII director in September 2001 and Secretary.
Mr. Hardy has servedappointed as General Counsel to I-Link since October 1996, and was
appointed Secretary of I-Link in December 1996. In November 2000, Mr. Hardy
became an employee of I-Link and in January 2000 was named Senior Vice
President. He is a founding partnerchairman of the law firmBoard of Hardy & Allen,Directors in Salt
Lake City. From February 1993 to April 1995,November 2001. Mr. Hardy served as Senior Vice
PresidentSilber is the Chairman and GeneralCEO of Counsel of Megahertz Corporation, a publicly held
manufacturer of data communication products. Prior to his association with
Megahertz Corporation, Mr. Hardy was a senior partner of the law firm of Allen,
Hardy, Rasmussen & Christensen that waswhich he founded in 1982.1979. Mr. Hardy holdsSilber attended McMaster University and received a Bachelor'sBachelor of Science degree from the University of Utah and a Juris Doctor degree from the
University of Utah School of Law.
HENRY Y.L. TOH, Director. The board of directors elected Mr. Toh as a
Class II director and as Vice Chairman of the board of directors in April 1992.
Mr. Toh was elected President of I-Link in May 1993, Acting Chief Financial
Officer in September 1995 and Chairman of the Board in May 1996, and served as
such through September 1996. Mr. Toh has served as a director of National Auto
Credit, Inc. (an originator of sub-prime automobile financing) from 1998 through
the present. He is also a Director of Four M. He is a graduate of Rice
University.
DAVID R. BRADFORD, Director. The board of directors elected Mr. Bradford as
a Class III Director in January 2000. Mr. Bradford served as senior
vice-president and general counsel for Novell, Inc. from 1985 until July 2000.
Prior to joining Novell, Inc., he served as western region legal counsel for
Prime Computer and as the general manager for Businessland in Los Angeles.
Mr. Bradford is past Chairman of the Board of the Business Software Alliance,
the leading business software trade association representing Microsoft, Novell,
Adobe and Autodesk, among others. Mr. Bradford also serves on the board of
directors of Pervasive Software, Altius Heath, Found.com, SportsNuts.com and
Utah Valley State College. Mr. Bradford received his Juris Doctor from Brigham
Young University and a Master's degree in Business Administration from
Pepperdine University.
HALToronto.
Hal B. HEATON,Heaton, Director. Dr. Heaton was appointed by the boardBoard of directorsDirectors as a Class II Directordirector on June 14, 2000 to fill a board vacancy. From 1982 to present he has been a professor of Finance at Brigham Young University and between 1988 and 1990 was a visiting professor of Finance at Harvard University. Dr. Heaton is a director of MITY Enterprises, Inc., a publicly traded manufacturer of furniture in Orem, Utah. Dr. Heaton holds a Bachelor's degree in Computer Science/Mathematics and a Master's degree in Business Administration from Brigham Young University, as well as a Master's degree in Economics and a Ph.D. in Finance from Stanford University.
SAMUEL L. SHIMER,
Albert Reichmann, Director. Mr. ShimerReichmann was appointed byelected to the boardBoard of directorsDirectors as a Class I Director on April 15, 2001 to fill a board vacancy. From
1997 to present he has been Senior Vice President of Counsel Corporation. He is
a Director of FARO Pharmaceuticals, Inc. and IBT Technologies. From 1991 to
1997, Mr. Shimer spent six years with Centre Partners/Corporate Partners, two
merchant banking funds affiliated with Lazard Freres & Co., as an associate,
then a Vice President, and a principal. Mr. Shimer holds a Bachelor's degree
from The Wharton School, University of Pennsylvania, and a Master's degreeIII director in Business Administration from Harvard Business School.
NOMINEES TO THE BOARD OF DIRECTORS
Set forth below are the names of the nominees, principal occupation, the
business experience of each for at least the past five years and certain other
information concerning each of the nominees.
8
ALLAN C. SILBER. Mr. Silber is the Chairman and CEO of Counsel Corporation,
which he founded in 1979. He is a member of the board of directors of
Impower, Inc. and Proscape Technologies, Inc. He is also Chairman of the Board
of FARO Pharmaceuticals, Inc. and a member of the board of trustees of RioCan
Real Estate Investment Trust. Mr. Silber attended McMaster University and
received a Bachelor of Science degree from the University of Toronto.
NORMAN CHIRITE. Mr. Chirite is a Senior Vice President and General Counsel
of Convergence Holdings Corp., a privately-held marketing services and
communications company based in Arlington, Virginia. From 1992 to 2000,
Mr. Chirite was a partner in the Corporate Department of Weil, Gotshal & Manges
LLP, an international law firm based in New York City, specializing in
mergers & acquisitions, corporate finance and private equity transactions.
Mr. Chirite also serves as a director of Iogen Corporation, a privately-held
industrial biotechnology firm based in Ottawa, Ontario, Canada. Mr. Chirite
received his Bachelor's and Juris Doctor degrees from the University of
Michigan.
ALBERT REICHMANN.September 2001. From 1996 to present, Mr. Reichmann has served as the Chairman and Chief Executive Officer of Heathmount A.E. Corporation, a company established for the creation and development of sports and amusement parks in North America and Asia. He is the Chairman of Olympia & York Developments
Limited, a leading international commercial developer recognized for
revitalization projects such as the World Financial Center in New York and
Canary Wharf in London. Mr. Reichmann is internationally recognized for his humanitarian and charitable efforts which range from Armenian earthquake relief to medical relief for child victims of the Chernobyl nuclear disaster to arranging the first cabinet-level meetings between the governments of Israel and the Soviet Union sinceafter the end of the Six-Day War. Mr. Reichmann holds an honorary Degree of Laws from the Faculty of Administrative Studies of York University. Mr. Reichmann has served on the Steering Committee of York University's International Management Center located in Budapest, Hungary since 1988 and is an Advisor to its East-West Enterprise Exchange initiative. Mr. Reichmann is a founder of the Canada-USSR Business Council established in 1989 by intergovernmental agreement.
Samuel L. Shimer, Director, Senior Vice President, Mergers & Acquisitions and Business Development. Mr. Shimer was appointed by the Board of Directors as a Class I director on April 15, 2001 to fill a board vacancy and was appointed Senior Vice President, Mergers & Acquisitions and Business Development on February 12, 2003. From 1997 to present he has been employed by Counsel Corporation, serving as a Managing Director since 1998. Mr. Shimer is currently serving as a director of Counsel Communications, the parent of I-Link. From 1991 to 1997, Mr. Shimer worked at two merchant banking funds affiliated with Lazard Frères & Co., Centre Partners and Corporate Partners, ultimately serving as a Principal. Mr. Shimer earned a Bachelor of Science in Economics degree from The Wharton School of the University of Pennsylvania, and a Master's degree in Business Administration from Harvard Business School.
Henry Y.L. Toh, Director. The Board of Directors elected Mr. Toh as a Class II director and as Vice Chairman of the Board of Directors in April 1992. Mr. Toh became President of I-Link in May 1993, Acting Chief Financial Officer in September 1995 and Chairman of the Board in May 1996, and served as such through September 1996. Mr. Toh has served as a director of National Auto Credit, Inc. (previously an originator of sub-prime automobile financing that is transitioning into new lines of business) from 1998 through the present and Teletouch Communications, Inc., a retail provider of internet, cellular and paging services, beginning in November 2001. He is also a director of Four M International Inc., a private investment firm, and a director and a member of the Audit and Special Committees of Bigmar Pharmaceutical, Inc., a subsidiary of Bigmar Inc., a Swiss-based pharmaceutical company. He is a graduate of Rice University.
John R. Walter, Director. Mr. Walter was appointed by the Board of Directors as a Class III Director on December 6, 2002. In 1996, Mr. Walter retired as the President and Chief Operating Officer of AT & T, where he was responsible for day-to-day operations of the company's core long-distance, local, wireless and on-line services businesses, as well as its credit card and outsourcing
10
businesses. He is Chairman of Ashlin Management Company, a private management consulting firm with an emphasis on corporate strategic planning and development of corporate employee and management culture. Mr. Walter began his career in 1969 at R.R. Donnelley & Sons, becoming President in 1987. In 1989, he was appointed Chairman, President, and Chief Executive Officer, a position he retained through 1996, when he resigned to join AT&T. He serves on the board of directors of Abbott Laboratories, Deere & Company, Manpower, Inc., Applied Graphics Technologies and SNP Corporation of Singapore. He is a trustee of the Chicago Symphony Orchestra and Northwestern University. Mr. Walter also serves on the International Advisory Council of the Singapore Economic Development Board and is a director of the Evanston Northwestern Healthcare Corporation, the Executives' Club of Chicago, Chicago Council on Foreign Relations and Steppenwolf Theatre. He is a member of the Board of Advisors of Brookfield Zoo.
Gary J. Wasserson, Director, President of Acceris Communications Technologies, Inc., a wholly-owned subsidiary of I-Link. Mr. Wasserson was appointed by the Board of Directors as a Class I Director on April 15, 2001 to fill a Board vacancy. In May 2001, Mr. Wasserson was appointed CEO of I-Link which position he held until his resignation in December 2001. In June 2001, Mr. Wasserson became President and CEO of WorldxChange Corp which position he held until May 2002. From December 2002, Mr. Wasserson has served as President of Acceris Communications Technologies, Inc., a wholly-owned subsidiary of I-Link. From 1999 to October 31, 2001, he was President and Chief Executive Officer of Counsel Communications and since November 1, 2001 he has been a Managing Director of Counsel Corporation (US)). From 1997 to 1999, he was President and Chief Executive Officer of Call SciencesTM/VirtelTM, a major provider of enhanced telecommunications services deliverable over global intelligent networks. From 1992 to 1997, he served as Chief Executive Officer of Global Links/GTS, a company instrumental in creating the calling card industry trade association and its regulatory initiatives within the industry. Mr. Wasserson holds a Bachelor's degree from Babson College. On February 13, 2003, a grand jury empanelled in the United States District Court for the Eastern District of Pennsylvania issued an indictment (Indictment) against Mr. Wasserson charging him with three felony counts of violations of the Resource Conservation and Recovery Act (RCRA) which is administered by the United State Environmental Protection Agency, and one count of aiding and abetting. The Indictment alleges violations of RCRA in connection with the unauthorized transportation and disposal of hazardous substances (specifically, dry cleaning supplies) in an un-permitted municipal landfill facility. The municipal landfill quickly identified the disposal of hazardous substances and remediated the site. Mr. Wasserson reimbursed the landfill for the cleanup. Mr. Wasserson has informed I-Link that at no time was there a risk to the public as a result of the disposal of the hazardous substances. Mr. Wasserson is contesting the charges and has informed I-Link that he believes he has substantial defenses.
Ralph Brandifino, Chief Financial Officer/Treasurer of WorldxChange. Mr. Brandifino joined WorldxChange in July 2001 after serving as Chief Financial Officer for three other international telecommunication organizations over the past five years: Justice Telecommunications, Pittsburgh International Telecom, and WorldxChange Communications. Prior to those appointments, he served as the Senior Vice President and Chief Financial Officer for Terex Corporation, a Fortune 500 global producer of industrial equipment. He also served as Senior Vice President and Chief Financial Officer for Long Island Lighting Company, a Fortune 500 company and the 20th largest utility in the United States, and for Chicago Pneumatic Tool Company, a Fortune 500 multinational manufacturer of diverse capital goods products. Mr. Brandifino received a Bachelor's degree in business from Hofstra University in 1966 and a Master's degree from the Wharton School of Business in 1980. He also earned a Juris Doctor degree from St. John's University and is a member of the New York Bar.
Gary M. Clifford, Vice President of Finance, Chief Financial Officer. Mr. Clifford joined Counsel Corporation in November 2002 as and presently is its Chief Financial Officer. From June 1998 to October 2002, Mr. Clifford held various senior roles at Leitch Technology Corporation in Finance,
11
Operations and Corporate Development. From February 1996 to June 1996, Mr. Clifford worked for NetStar Communications Inc. Mr. Clifford is a Chartered Accountant, who articled with Coopers & Lybrand. A graduate of the University of Toronto, with a Bachelor degree in Management, he has also lectured at Ryerson Polytechnic University in Toronto, Canada. Mr. Clifford was appointed as Vice President of Finance of I-Link on December 6, 2002 and Chief Financial Officer on February 12, 2003.
James Ducay, President of Acceris Communications Solutions, a division of WorldxChange. Mr. Ducay was appointed President of Acceris Communications Solutions on December 10, 2002. Previously, Mr. Ducay was Executive Vice President and Chief Operating Officer of RSL COM USA with responsibility for Marketing, Sales and Account Services, Engineering and Operations, and Information Technology. Before joining RSL COM USA, Mr. Ducay was Vice President of Marketing and Sales for Ameritech Interactive Media Services where he was responsible for managing Ameritech's Internet products and related sales channels. He also served as Managing Director and Vice President for Bell Atlantic/NYNEX. Mr. Ducay has a Master's Degree in Engineering from the University of Illinois and a Master's Degree in Business Administration from the University of Chicago.
Kenneth L. Hilton, Chief Executive Officer of Acceris Communications Partners, a division of WorldxChange. Kenneth L. Hilton was appointed Chief Executive Officer of WorldxChange in May 2002 and Chief Executive Officer of Acceris Communications Partners in December 2002. From June 1999 to December 2001, Mr. Hilton served as the Chief Executive Officer of Handtech.com, an Internet-based start-up company in Austin, TX. that provided customized E-commerce storefronts, supply chain management and back office services to value-added resellers. Prior to Handtech, from October 1995 to May 1999, he was the Executive Vice President of North American Consumer Sales for Excel Communications, where he also served as the Chairman of the Board for Excel Canada. Prior to his 5 years at Excel, he ran North America operations for PageMart Wireless where he launched the Canadian business and also served as the Chairman of the Canadian Board. Prior to PageMart, Mr. Hilton held numerous sales and management positions with IBM. His 14-year career with IBM included sales, sales management, branch management and regional management positions.
Barbara Jamaleddin, Senior Vice President of Acceris Communications Partners, a division of WorldxChange. Prior to this position, Ms. Jamaleddin held the position of Senior Vice President for WorldxChange Communications from 1995 to 2001. Prior to WorldxChange, Ms. Jamaleddin spent seven years with Sprint, where she served as Director of Product Development & Support and Director, National Operations Control Center. While at Sprint, Ms. Jamaleddin was named inventor of a patent for enhanced services and was the founder of the Women's Organization. Ms. Jamaleddin's early career was with Michigan Bell, and from 1966 through 1987, she led Michigan Bell's quest to upgrade more than 200 of its central offices to Stored Program Control. Ms. Jamaleddin attended Wayne State University.
Kelly Murumets, Director and Executive Vice President. Ms. Murumets joined Counsel Corporation in February 2002 as Executive Vice President. Over the past fifteen years, most recently as a Vice President with Managerial Design, Ms. Murumets was an advisor to clients throughout North America giving leaders the insight and guidance required to achieve consensus, build cohesive and committed leadership teams, and implement change. Ms. Murumets received her BA from Bishop's University in 1985, her MBA from the University of Western Ontario's Ivey School of Business in 1988 and her MSW from Wilfrid Laurier University in 1996. Ms. Murumets was appointed as Executive Vice President of I-Link on December 6, 2002 and as a Director on February 12, 2003.
Stephen Weintraub, Senior Vice President and Secretary. Mr. Weintraub joined Counsel Corporation in June 1983 as Vice President, Finance and Chief Financial Officer. He has been and is an officer and director of various Counsel Corporation subsidiaries. He has been Secretary of Counsel Corporation since 1987 and Senior Vice President since 1989. From 1980 to 1983 he was Secretary-Treasurer of Pinetree Development Co. Limited, a private real estate developer and investor. From
12
1975 to 1980 he was Treasurer and CFO of Unicorp Financial Corporation, a public financial management and holding company. Mr. Weintraub received a Bachelor's degree in Commerce from the University of Toronto in 1969, qualified as a Chartered Accountant with Clarkson, Gordon (now Ernst & Young) in 1972 and received his law degree (LL.B.) from Osgoode Hall Law School, York University in 1975.
Each officer of I-Link is appointed by the boardBoard of directorsDirectors and holds his office at the pleasure and direction of the boardBoard of directorsDirectors or until such time of hishis/her resignation or death.
There
Except as provided above, there are no material proceedings to which any director, officer or affiliate of I-Link, any owner of record or beneficially of more thanthat five percent of any class of voting securities of I-Link, or any associate of any such director, officer, affiliate of I-Link or security holder is a party adverse to I-Link or any of its subsidiaries or has a material interest adverse to I-Link or any of its subsidiaries.
THE BOARD OF DIRECTORS
The boardBoard of directorsDirectors
The Board of Directors oversees the business affairs of I-Link and monitors the performance of management. The boardBoard of directorsDirectors held 15three meetings during the fiscal year ended December 31, 2000. During the fiscal year ended
December 31, 2000, no2002. No incumbent director attended fewerless than 75 percent75% or more of the Board meetings except for Mr. Reichmann who attended two out of three meetings.
The Board of Directors has designated two standing committees: the Audit Committee and the Compensation Committee. At the February 12, 2003 Board meeting, the Board of Directors resolved to eliminate I-Link's Finance Committee.
Committees of the boardBoard of directors or of the committees on which he served.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE.Directors
Audit Committee. On June 9, 2000, the boardBoard of directorsDirectors approved I-Link's Audit Committee Charter.Charter, which was subsequently revised and amended by I-Link's Audit Committee amended and approved the Audit
Committee Charter on July 10, 2001. Subsequently on February 12, 2003 the Board of Directors considered and approved a revised Audit Committee Charter incorporating certain updates in light of the most recent regulatory developments, including the Sarbanes-Oxley Act of 2002. A copy of the current Audit Committee Charter is attached as Appendix A. Our audit committeeThe Audit Committee is responsible for making recommendations to the boardBoard of directorsDirectors concerning the selection and engagement of I-Link's independent certified public accountants and for reviewing the scope of the annual audit, audit fees, and results of the audit.audit, and auditor independence. The audit committeeAudit Committee also reviews and discusses with management and the boardBoard of directorsDirectors such matters as accounting policies, and internal accounting controls, and procedures for preparation of financial statements. Its membership is currently comprised of Mr. Heaton (Chairman)
of the audit committee,(chairman), Messrs. Toh and Messrs. Bradford and Toh are the current members of
the audit committee. Messrs. Heaton and Bradford are independent, non-employee
directors.Walter. Mr. Toh was employed by
9
boardBoard of directorsDirectors determined that because of Mr. Toh's substantial experience in public accounting, with public companies and his substantial audit committee experience derived from his participation on the boardBoard of directorsDirectors and the audit committeeAudit Committee of a different public company, combined with his years of experience as an officer and director of I-Link, the best interests of I-Link and its shareholdersstockholders required Mr. Toh's membership onof I-Link's audit committee.Audit Committee. Mr. Toh currently is not currently an I-Link employee of
I-Link nor is he an immediate family member of an I-Link employee. The audit
committeeAudit Committee held threefive meetings during the last fiscal year ended December 31, 2000.
See "Independent Public Accountants."
COMPENSATION COMMITTEE. Our compensationyear.
13
Audit Committee Financial Expert
The I-Link Board of Directors has determined that I-Link does not have an audit committee financial expert serving on its Audit Committee. I-Link does not have an audit committee financial expert because it has been unable to attract such a person.
Code of Conduct
I-Link has adopted a code of conduct that applies to its principal executive, financial and accounting officers. I-Link will provide a copy of its code of conduct, without charge, to any person that requests it. Requests should be addressed in writing to Mr. Stephen Weintraub, Corporate Secretary, The Exchange Tower, 130 King Street West, Suite 1300, P.O. Box 435, Toronto, Ontario M5X1E3.
Compensation Committee. The Compensation Committee reviews and approves the compensation for executive employees. Its membership is currently comprised of Messrs. Heaton, Toh and Reichmann. The Compensation Committee held one meeting during the last fiscal year.
Special Committee. The Board of Directors maintains a Special Committee of directors who are not employees of I-Link. Mr. Bradford is ChairmanCounsel Corporation for the purposes of reviewing and approving related party transactions (Special Committee). The Special Committee consists of two members, Henry Toh and Hal Heaton. During 2002, the Special Committee negotiated the terms of the compensation committee. Mr. Heaton isDebt Restructuring Agreement discussed in Proposal 3 of this Proxy Statement. In 2002, during the other membernegotiations of the committee. The
compensation committee held five meetings duringdebt restructuring transaction (discussed in detail in Proposal 3 of this proxy statement) the fiscal year ended
December 31, 2000.
FINANCE COMMITTEE. Our finance committee is responsible for reviewing and
evaluating financing, strategic business development and acquisition
opportunities. Mr. Edwards is ChairmanSpecial Committee met in excess of the finance committee; Mr. Heaton is
the only other member of the finance committee with one vacancy on the
committee. The finance committee held 12 meetings during the fiscal year ended
December 31, 2000.
SPECIAL COMMITTEE. Our special committee was formed in January 2001, to
advise the board of directors on matters relating to raising funds and
capitalization issues. Mr. Bradford was Chairman of the special committeethirty times, and Messrs. Toh and Heaton were members. The special committee was disbanded in
March 2001, after conclusion ofpaid $34,000 and $22,500 respectively for their service on the Counsel Corporation transactions with I-Link
and Winter Harbor. See "Certain Relationships and Related Transactions".Special Committee.
We do not have noa nominating or a corporate governance committee or any committeecommittees serving a similar function.
AUDIT COMMITTEE REPORT
functions. However, corporate governance functions are included in the Audit Committee charter
The following paragraphs in this section constitute information required pursuant to paragraph (e)(3) of Item 7 of the Exchange Act Rule. In accordance with these rules, the information provided in this proxy statementProxy Statement shall not be deemed to be "soliciting material," or to be "filed" with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Exchange Act. This information shall also not be deemed to be incorporated by reference into any filings by I-Link with the SEC, notwithstanding the incorporation of this Proxy Statement into any of these filings.
The audit committee
During the fiscal year ended December 31, 2002, the Audit Committee performed the following functions:
-
- •
- review of audit services and selection of I-Link's independent auditors;
- •
- reviewed and discussed I-Link's audited financial statements with
management; -management and the independent auditors; - •
- discussed with I-Link's independent auditors the matters required to be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU
Section 380)§380); SAS 61 requires independent auditors to communicate certain matters related to the conduct of an audit to those who have responsibility for oversight of the financial reporting process, specifically the audit committee. Among the matters to be communicated to the audit committee are: (1) methods used to account for significant unusual transactions; (2) the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus; (3) the process used by management in formulating particularly sensitive accounting estimates
14
- •
- received the written disclosures and the letter from the independent
accountantsauditors required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), andhasdiscussed with the independentaccountant the independent accountant'sauditors their independence in accordance with SEC Rule201-2.01;201-2.01 and-other applicable law; and - •
- based on the review and discussions above, the Audit Committee
recommended to the board of directors thatapproved the audited financial statementsbe included in I-Link's annual report on Form 10-Kfor the last fiscalyear for filing with the SEC.year.
and the basis for the auditor's conclusions regarding the reasonableness of those estimates; and (4) disagreements with management over the application of accounting principles, the basis for management's accounting estimates, and the disclosures in the financial statements;
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-
| By the members of the Audit Committee: | ||
| Hal B. Heaton, Chairman Henry Y. L. Toh John R. Walter |
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COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the aggregate cash compensation paid for services rendered to I-Link during the last three years by each person serving as I-Link'sour Chief Executive Officer during the last year and I-Link's fiveour other most highly compensated executive officers serving as such asat the end of the year ended December 31, 2000,2002 whose compensation was in excess of $100,000.
| | | | | | Long-Term Compensation | | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Annual Compensation | Awards | Payouts | | ||||||||||||
| Name and Principal Position | Year | Salary($) | Bonus($) | Other Annual Compensation($) | Restricted Stock Awards($) | Securities Underlying Options/ SARs(#) | LTIP Payouts($) | All Other Compensation($) | ||||||||
| Allan Silber(1) | 2002 2001 2000 | — — — | — — — | — — — | — — — | — — — | — — — | — — — | ||||||||
Helen Seltzer(2) | 2002 2001 2000 | 267,360 — — | 309,375 — — | — — — | — — — | — — — | — — — | — — — | ||||||||
Ralph Brandifino(3) Chief Financial Officer, WorldxChange | 2002 2001 2000 | 226,050 95,897 | 63,025 15,250 | — — — | — — — | — — — | — — — | — — — | ||||||||
Kenneth L. Hilton(4) Chief Executive Officer, WorldxChange | 2002 2001 2000 | 183,333 | 183,333 | — — — | — — — | — — — | — — — | — — — | ||||||||
Barbara Jamaleddin(5) Senior Vice President, WorldxChange | 2002 2001 2000 | 205,500 115,256 | 67,750 18,092 | — — — | — — — | — — — | — — — | — — — | ||||||||
- (1)
- Mr.
Edwards began his employment with I-Link in April 1996 andSilber was appointedPresident and CEOasof September 30, 1996 and resigned as president in December 2000; he resumed his duties as President upon Mr. Nahumi's resignation in January 2001. Mr. Edwards was paid at an annual rate of $125,000 commencing January 1, 1998 even though Mr. Edward's salary was increased to $200,000 effective May 1997, however the salary increase accrued but was not paid from May 1997 to April 2000 when I-Link began to pay his salary at the rate of $225,000. The deferred salary in the amount of $141,875 was paid during 2000. In 2000, we also contributed $1,700 as a match to Mr. Edwards' 401K contribution and paid $1,025 on a life insurance policy. Mr. Edwards resigned as President andChief Executive Officer and President of I-Link as of December 19, 2002. - (2)
- Ms. Seltzer served as the Chief Executive Officer of I-Link from January 3, 2002 through December 19, 2002. Bonus amount includes severance payment of $171,875.
- (3)
- Mr. Brandifino became the Chief Financial Officer and Treasurer of WorldxChange on July 25, 2001.
- (4)
- Mr. Hilton became the Chief Executive Officer of WorldxChange on May 1,
2001. On that same date he and I-Link executed2002. - (5)
- Ms. Jamaleddin became a
Separation and Release Agreement pursuantSenior Vice President of WorldxChange on June 4, 2001.
Option/SAR Grants in Last Fiscal Year (2002)
No options were granted to which Mr. Edwards will be paid a totalany of $225,000 over a sixteen month period and was granted benefits including
medical insurance over the sixteen month period. All of Mr. Edwards'
non-vested 300,000 options to purchase shares of I-Link common stock vested
on May 1, 2001.
11
(2) Mr. Nahumi began his employment with I-Link in June 1997 when I-Link
acquired MiBridge of which Mr. Nahumi was the president. Mr. Nahumi was
appointed president of I-Link in December 1999. Mr. Nahumi's annual salary
during 1998 was $100,000; 2000 was $110,000 which salary was then increased
to $200,000 per year when Mr. Nahumi was appointed President. In 2000, we
contributed $1,700 as a match to Mr. Nahumi's 401K contribution. Mr. Nahumi
resigned as president in January 2001, resulting in forfeiture of 1,270,835
options.
(3) Mr. Hardy became an employee of I-Link on November 1, 1999. Commencing
October 1996 and continuing, Mr. Hardy serves as Secretary and General
Counsel. I-Link began to pay his salary at the rate of $175,000 in
September 1999. The deferred salary was paid in the amount of $23,685 in
1999 and $80,757 in 2000. In January 2000, Mr. Hardy's salary was increased
to $200,000 per year.
(4) Mr. Ames began his employment in September 1998; his annual salary during
1998 was $120,000. In September 1999, Mr. Ames salary was increased to
$165,000 per year. In 2000, other compensation includes $1,700 contributed
as a match to Mr. Ames' 401K contribution and $7,536 paid for vacation not
taken. Mr. Ames' employment terminated on May 2, 2001. Pursuant to the
severance provisions of his employment agreement, Mr. Ames received a lump
sum equal to Mr. Ames' annual salary of $165,000, together with the
immediate vesting of all his non-vested options to purchase 125,000 shares
of I-Link common stock.
(5) Mr. Radulovic began his employment with I-Link in February 1996; his annual
salary during 1997 was $90,000. Mr. Radulovic's salary was increased to
$150,000 effective November 1998 and again to $200,000 in October 1999. In
2000, we paid $615 on a life insurance policy for Mr. Radulovic.
OPTION/SAR GRANTS IN LAST FISCAL YEAR (2000)
The following table sets forth certain information with respect to the
options grantedNamed Executive Officers during the year ended December 31, 2000, for the persons named2002.
Aggregated Option/SAR Exercises in the Summary Compensation Table:
NUMBER OF SECURITIES PERCENT OF TOTAL EXERCISE OR
UNDERLYING OPTIONS/SARS GRANTED TO BASE PRICE GRANT DATE EXPIRATION
NAME OPTIONS/SARS GRANTED (#) EMPLOYEES IN FISCAL YEAR ($/SHARE) VALUE(1) DATE
- ---- ------------------------ ------------------------ ----------- ---------- ----------
John W. Edwards(2)....... 25,000(2) *(3) $2.78 $ 36,900 1/1/10
Dror Nahumi(4)........... 1,750,000 30.9% 2.75 2,670,959 1/3/10
David E. Hardy(1)........ 100,000 1.8% 2.75 147,478 1/3/10
John M. Ames(5).......... 300,000(5) 5.3% 2.75 442,435 1/3/10
Alex Radulovic........... 400,000 7.1% 2.75 589,913 1/3/10
- ------------------------
(1) Determined using the Black Scholes option-pricing model.
(2) Mr. Edwards' employment with I-Link terminated on May 1, 2001, at which time
300,000Last Fiscal Year and Fiscal Year-End Option/SAR Values
None of his non-vested options immediately vested according to the terms
of his Separation Agreement executed on May 1, 2001.
(3) Indicates less than one percent.
(4) Mr. Nahumi's employment with I-Link terminated on January 8, 2001.
(5) Mr. Ames' employment with I-Link terminated on May 2, 2001, at which time
his non-vested options (125,000) vested according to the terms of his
Employment Agreement dated January 3, 2000.
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AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
The following table sets forth certain information with respect to options
exercised during 2000 by the Named Executive Officers and with respect toexercised any options during 2002; nor did any of them hold any unexercised options held by such persons at the end of 2000.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARS AT THE-MONEY OPTIONS/SARS
SHARES FY-END (#) AT FY END ($)(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------------- ------------- ----------- ------------- ----------- -------------
John W. Edwards(2)......... 12,000 $43,897 1,709,670(2) 333,330(2) -- --
Dror Nahumi(3)............. -- -- 625,000 1,375,000 -- --
David E. Hardy............. -- -- 841,667 58,333 -- --
John M. Ames(4)............ -- -- 441,667(4) 208,333(4) -- --
Alex Radulovic............. -- -- 711,670 688,330 -- --
- ------------------------
(1)2002.
Compensation Committee Report on Executive Compensation
The calculations of the value of unexercised options are based on the
difference between the closing bid price on Nasdaq of the common stock on
December 31, 2000, and the exercise price of each option, multiplied by the
number of shares covered by the option. Value ascribed to unexercised
options at December 31, 2000 was minimal as the exercise price exceeded the
closing bid price at December 31, 2000 for the majority of options.
(2) Mr. Edwards' employment with I-Link terminated on May 1, 2001, at which time
the vesting schedule accelerated and 300,000 non-vested options immediately
vested according to the terms of his Separation and Release Agreement
executed on May 1, 2001.
(3) Mr. Nahumi's employment with I-Link terminated on January 8, 2001.
(4) Mr. Ames' employment with I-Link terminated on May 2, 2001, at which time
the vesting schedule accelerated and non-vested options (125,000)
immediately vested according to the terms of his Employment Agreement dated
January 3, 2000.
TEN-YEAR OPTION/SAR REPRICINGS
The following sets forth certain information with respect to repricing of
options and SARs held by any executive officer during the last ten completed
fiscal years.
The principal elements of the compensation program for executive officers are base salary and stock options. While bonuses are a potential component of
executive officer compensation, no bonuses have been awarded to executive
officers. The goals of the program are to give the executive officers incentives to work toward the
16
improved financial performance of I-Link and to reward them for their contributions to I-Link's success. For a summary of fiscal 20002002 compensation, see "Compensation of Executive Officers and Directors" above.
BASE SALARIES.
Base Salaries. The committeeCommittee has based its decisions on salaries for I-Link's executive officers, including the Chairman,Chief Executive Officer and President Vice President
of Operations and Chief Financial Officer, on a number of factors, both objective and subjective. Objective factors considered include increases in the cost of living, I-Link's overall historical performance and comparable industry data, although no specific formulas based on such factors have been used to determine salaries. Salary decisions are based primarily on the committee'sCommittee's subjective analysis of the factors contributing to I-Link's long-term success and of the executives' individual contributions to such success.
STOCK OPTIONS.
Stock Options. The committeeCommittee views stock options as its primary long-term compensation vehicle for I-Link's executive officers. Stock options generally are granted at the prevailing market price on the date of grant and will have value only if I-Link's stock price increases. Options granted to executive officers generally vest in quarterly increments over three years beginning on the date of the grant. Some options vest in increments upon the attainment by I-Link of certain performance benchmarks. Grants of stock options generally are based upon the performance of I-Link, the level of the executive's position within I-Link and an evaluation of the executive's past and expected future performance. The committeeCommittee grants stock options periodically, but not necessarily on an annual basis. On December 13, 1998, the board of directors by
unanimous resolution amended the incentive-related qualified and non-qualified
stock options previously granted to I-Link employees, directors and consultants
(with certain exceptions) to reset those options with an exercise price in
excess of $3.90 per share to an exercise price of $3.90 per share. The
motivation of the board in taking this action was both to reward these persons
for their continued diligence and efforts on behalf of I-Link, recognizing that
many of these individuals are being compensated at a salary level below market
norms, and to provide added incentive to establish and advance I-Link's business
in such a manner that will reflect on I-Link's stock price to bring it up to and
beyond the reset exercise price.
CHIEF EXECUTIVE OFFICER. The salary established in fiscal 2000 for John W.
Edwards, the Chairman and former President and Chief Executive Officer of
I-Link, was based on the factors and analysis
14
described. Specific factors considered by the committee include the Chairman's
current responsibilities with I-Link.
By the members of the Compensation Committee:
David R. Bradford, CHAIRMAN
Hal B. Heaton
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG I-LINK INCORPORATED, THE RUSSELL
17
Comparison of Cumulative Total Return among I-Link Incorporated, The Russell
2000 INDEX ANDIndex and A PEER GROUP
PERFORMANCE GRAPHPeer Group
Performance Graph
The following graph compares I-Link's cumulative total stockholder return with that of the Russell 2000 index of small-capitalization companies and a peer group index. The issuers comprisingDuring 2002 and beginning with this Proxy Statement, I-Link reevaluated the composition of its performance peer group areand determined that a change was appropriate. I-Link is making this change in light of the most recent changes in the strategic direction of the Company and re-orientation of its business priorities.
During this transition year, both the 2001 peer group (consisting of IDT Corporation, Premier
Technologies, Inc., ICG Communications, Inc. and AlphaNet Solutions, Inc.) and the new 2003 peer group (consisting of ATX Communications, Inc., Deltathree, Inc., Universal Access Global Holdings, Inc., IDT Corporation, Buyers United, Inc. and Primus Telecommunications Group, Inc.) indexes are shown so that stockholders may compare them for the most recent 5 year performance period. I-Link chose thesethe companies comprising the 2003 peer group because they are similar in size, andare similar in their lines of business to I-Link.I-Link and represent I-Link's competitors in various geographical markets subsequent to the most recent changes in I-Link's business. The graph assumes an initial investment of $100.00 made on December 31, 1995,1997, and the reinvestment of dividends (where applicable). I-Link has never paid a dividend on its common stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG I-LINK CORPORATED, THE RUSSELL 2000 INDEX
AND A PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Total Return to Stockholders
(Assumes $100 INVESTED ONInvestment on 12/31/95 IN STOCK OR INDEX-
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDED DECEMBER 31.
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The following represents in table form the same information set forth in the
graph above.
CUMULATIVE TOTAL RETURN ($)
---------------------------------------------------------------
12/95 12/96 12/97 12/98 12/99 12/00
-------- -------- -------- -------- -------- --------
I-Link Incorporated................ 100.00 337.50 408.33 141.67 185.40 52.07
Industry Peer Group................ 100.00 116.49 142.55 138.92 168.45 163.36
Russell 2000....................... 100.00 143.88 197.03 108.46 104.64 35.40
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DIRECTOR COMPENSATION
During 1997, directors of I-Link then serving received options to purchase
10,000 shares of common stock on the first business day of January of each year
at an exercise price equal to the fair market value of the common stock on the
date of grant.97)
| Total Return Analysis | 12/31/97 | 12/31/98 | 12/31/99 | 12/31/00 | 12/31/01 | 12/31/02 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ILINK, Inc. | $ | 100.00 | $ | 34.69 | $ | 45.41 | $ | 12.76 | $ | 1.22 | $ | 2.04 | ||||||
| New Peergroup | $ | 100.00 | $ | 89.82 | $ | 153.18 | $ | 114.46 | $ | 145.55 | $ | 144.46 | ||||||
| Old Peergroup | $ | 100.00 | $ | 55.05 | $ | 53.11 | $ | 17.97 | $ | 30.40 | $ | 26.80 | ||||||
| Russell 2000 | $ | 100.00 | $ | 96.55 | $ | 115.50 | $ | 110.64 | $ | 111.78 | $ | 87.66 | ||||||
18
On the first business day ofin January of each year prior to 2002, each director then serving receiveswas to receive an option to purchase 20,000 shares of common stock and for each committee on which the director serves an option to purchase 5,000 shares of common stock. The exercise price of thesesuch options shall beis equal to the fair market value of the common stock on the date of grant. The directors are also eligible to receive options under I-Link'sour stock option plans at the discretion of the Board of Directors.
In 2002 the Board of Directors voted to only award options to the independent directors in accordance with the above-described arrangement. In addition, each independent director will be paid $1,000 for each in-person board meeting attended and $500 for each telephonic board meeting attended.
In addition, during 2002, Messrs. Heaton and Toh received $22,500 and $34,000, respectively, in connection with the services that they rendered for the Special Committee.
Employment Contracts and Termination of directors.Employment and Change-in-Control Arrangements
Helen Seltzer Employment Contract. On January 3, 2002, Springwell Capital Corporation (now Acceris Capital Corporation), I-Link, Counsel Corporation and Helen Seltzer entered into an agreement whereby Ms. Seltzer became I-Link's Chief Executive Officer. The term of the agreement was four years at an annual base salary of $275,000. Ms. Seltzer is eligible for a discretionary bonus in an amount to be determined by the Board of Directors of WorldxChange up to 100% of her annual base salary. In March, 2001,2002, she was guaranteed a minimum bonus of $137,500. Ms. Seltzer also entered into an agreement on January 3, 2002 with Counsel Communications and Counsel Corporation. Under that agreement, Ms. Seltzer was issued approximately 0.2% of the following directors
received cash payments forcommon units of Counsel Communications, which common units vest over a four-year period commencing on January 3, 2003. In addition to serving as membersCEO of I-Link, Ms. Seltzer agreed to serve as a member of the special committeeManagement Executive Committee of Counsel Communications. Ms. Seltzer also had the right to participate in Counsel Corporation's 2001 Executive Stock Purchase Plan. Ms. Seltzer was terminated as follows: Mr. Bradford $9,250, Mr. Toh $9,000,I-Link's Chief Executive Officer on December 12, 2002. As of the date of this report, all obligations under Ms. Seltzer's employment agreement have been satisfied.
Kenneth Hilton Employment Contract. On May 1, 2002, WorldxChange and Dr. Heaton $8,000.
EMPLOYMENT AGREEMENTS
On September 9, 1999, I-LinkKenneth L. Hilton entered into a three-yearfour-year employment agreement with John W. Edwards, Director and former President andpursuant to which Mr. Hilton became the Chief Executive Officer of I-Link. PursuantWorldxChange. Mr. Hilton's annual salary is $275,000, and he is eligible for a discretionary bonus in an amount to be determined by the termsBoard of Directors of WorldxChange up to 100% of his annual salary. Counsel Communications and Counsel Corporation also entered into an agreement with Mr. Hilton dated May 1, 2002, under which agreement, Mr. Hilton was issued approximately 0.2% of the employment agreement, Mr. Edwards was
employed as the President and Chief Executive Officercommon units of I-Link, and was
required to devote substantially all of his working time to the business and
affairs of I-Link. Mr. Edwards was entitled under his employment agreement to
receive compensation at the rate of $225,000 per year and was entitled toCounsel Communications, which common units vest over a profitability bonus at the discretion of the I-Link board of directors and to
participate in fringe benefits of I-Link as are generally provided to executive
officers. In addition, Mr. Edwards was granted an option to purchase 200,000
shares of common stock of I-Link at an exercise price of $3.56 per share based
on the market price at the date of grant. Of these options, 33,340 vested
immediately and 16,666 vest and become exercisable on the first calendar day of
each quarter beginning October 1, 2000. In the event of termination by I-Link or
in the event of a violation of a material provision of this employment agreement
by I-Link which was not remedied for thirty (30) days and after written notice
or in the event of a "change in control" (as defined in the agreement),
Mr. Edwards was entitled to receive, as liquidated damages or severance pay, an
amount equal to the Monthly Compensation (as defined in the agreement) for the
remaining term of the agreement or two years whichever was shorter and all
options from that time became fully vested and immediately exercisable. The
agreement contained non-competition and confidentiality provisions. Mr. Edwards
resigned as President and Chief Executive Officer and terminated his employment
with I-Linkfour-year period commencing on May 1, 2001. According2003. In addition to serving as CEO of WorldxChange, Mr. Hilton agreed to serve as a member of the termsManagement Executive Committee of Counsel Communications. For additional discussion related to this and other employment agreements see discussion related to "Certain Relationships and Related Transactions" of this Proxy Statement.
James Ducay Employment Contract. On July 1, 2002, WorldxChange and James Ducay entered into an employment agreement, which became effective on December 10, 2002, the date on which WorldxChange completed its acquisition of the assets of RSL, and expires on December 10, 2003. Mr. Ducay's annual salary is $275,000, and he is eligible for a discretionary bonus in an amount to be determined by the Board of Directors of WorldxChange up to 100% of his Separation and Release
Agreement, dated May 1, 2001,annual salary. Mr. Edwards will be paidDucay also agreed to serve as a total of $225,000 over
a sixteen- month period and will receive benefits including medical insurance
over the sixteen- month period. The Separation and Release Agreement also
provides for the immediate vesting of all of Mr. Edwards' 300,000 non-vested
options to purchase shares of I-Link common stock.
On January 3, 2000, I Link entered into a three-year agreement with Dror
Nahumi, former President of I-Link. Mr. Nahumi was required to devote
substantially all of his working time to the business and affairs of I-Link.
Mr. Nahumi was entitled under his employment agreement to receive compensation
at the rate of $200,000 per year and was entitled to a profitability bonus at
the discretionmember of the I-Link boardManagement Executive Committee of directors and to participate in fringe
benefits of I-Link as are generally provided to executive officers. In addition,
Mr. Nahumi was granted an option to purchase 1,000,000 shares of common stock of
I-Link at an exercise price of $2.75 per share based on the common stock's
market price at the date of grant. Of these options, 83,333 vested immediately
and 83,333 vest and become exercisable on the first calendar day of each quarter
beginning April 1, 2000. Mr. Nahumi was also granted an option to purchase
750,000 shares of common stock as performance accelerated stock options. Vesting
of 125,000 of the performance accelerated stock options is to occur when the
daily closing stock price attains or exceeds each of the following levels for
more than 20 consecutive trading days: $10, $12, $14, $16, $18, $20; provided,
however, that the performance accelerated stock options
16
will become fully exercisable on the five year anniversary of their issuance
(that is, on January 3, 2005) whether or not the stock price thresholds are
attained. In the event of a "change in control" (as defined in the agreement),
accelerated vesting of the options will not take place, except in the event of a
change of control pursuant to which I-Link's stock is exchanged for the stock of
another entity and the options are not rolled-over or otherwise exchanged for
similar options of such entity (with like terms and conditions). The agreement
contains non-competition and confidentiality provisions. Mr. Nahumi resigned as
President in January 2001 resulting in forfeiture of 1,270,835 options.
On January 3, 2000, I-Link entered into three-year employment agreements
with John M. Ames as Senior Vice President, Chief Operating Officer and Acting
Chief Financial Officer, and David E. Hardy as Senior Vice President and General
Counsel. Pursuant to the terms of the employment agreements, each of the two
individuals is required to devote substantially all of his working time to the
business and affairs of I-Link. Mr. Ames and Mr. Hardy are entitled under their
respective employment agreements to receive compensation at the rate of $165,000
and $200,000 per year, respectively, and are entitled to a profitability bonus
at the discretion of the I-Link's board of directors and to participate in
fringe benefits of I-Link as are generally provided to executive officers. In
addition, Mr. Ames and Mr. Hardy were granted options to purchase 300,000 and
100,000 shares of common stock of I-Link, respectively, at an exercise price of
$2.75 per share based on the market price at the date of grant. Of such options,
25,000 and 8,333, respectively, vested immediately and the same amounts vest and
become exercisable on the first calendar day of each quarter beginning
October 1, 1999. In the event of termination by I-Link or in the event of a
violation of a material provision of the agreement by I-Link which is unremedied
for thirty (30) days and after written notice or in the event of a "change in
control" (as defined in the agreement), all are entitled to receive, as
liquidated damages or severance pay, an amount equal to the Monthly Compensation
(as defined in the agreement) for twelve months and all options shall thereupon
be fully vested and immediately exercisable. The agreements contain
non-competition and confidentiality provisions. Mr. Ames resigned as Senior Vice
President, Chief Operating Officer and Acting Chief Financial Officer and
terminated his employment with I-Link on May 2, 2001. According to the terms of
his employment agreement, Mr. Ames will receive a lump sum equal to Mr. Ames'
salary, together with the immediate vesting of all his non-vested options to
purchase 125,000 shares of I-Link common stock.
On May 1, 2001, I-Link entered into a three-year employment agreement with
Gary J. Wasserson, President and Chief Executive Officer and a director of
I-Link. Pursuant to the terms of the employment agreement, Mr. Wasserson is
employed as the President, Chief Executive Officer and a director of I-Link, and
is required to devote substantially all of his working time to the business and
affairs of I-Link. Mr. Wasserson is entitled under his employment agreement to
receive compensation at the rate of $225,000 per year and is entitled to a
profitability bonus at the discretion of I-Link's board of directors and to
participate in fringe benefits of I-Link as are generally provided to executive
officers. In addition, Mr. Wasserson was granted an option to purchase 1,300,000
shares of common stock of I-Link at an exercise price of $0.55 per share based
on the market price at the date of grant. Of these options, 108,337 vested
immediately and 108,333 vest and become exercisable on the first calendar day of
each quarter beginning July 1, 2001. In the event of termination by I-Link or in
the event of a violation of a material provision of this employment agreement by
I-Link which is unremedied for thirty (30) days and after written notice or in
the event of a "change in control" (as defined in the agreement), Mr. Wasserson
is entitled to receive, as liquidated damages or severance pay, an amount equal
to the Monthly Compensation (as defined in the agreement) for the remaining term
of the agreement or two years whichever is shorter and all options shall from
that time be fully vested and immediately exercisable. The employment agreement
contains non-competition and confidentiality provisions.
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DIRECTOR STOCK OPTION PLANCounsel Communications.
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Director Stock Option Plan
I-Link's Director Stock Option Plan (DSOP) authorizes the grant of stock options to directors of I-Link. Options granted under the DSOP are non-qualified stock options exercisable at a price equal to the fair market value per share of common stock on the date of any such grant. Options granted under the DSOP are exercisable not less than six (6) months or more than ten (10) years after the date of grant.
As of December 31, 2000,2002, options for the purchase of 8,1694,668 shares of common stock at prices ranging from $.875$0.875 to $3.875 per share were outstanding. As of December 31, 2000,the same date, options to purchase 15,22815,895 shares of common stock have been exercised. In connection with adoption of the 1995 Director PlansPlan (as defined below) the board of directors authorized the termination of future grants of options under the DSOP; however, outstanding options granted under the DSOP will continue to be governed by the terms thereof until exercise or expiration of such options.
1995 DIRECTOR STOCK OPTION PLANDirector Stock Option Plan
In October 1995, the stockholders of I-Link approved adoption of I-Link's 1995 Director Stock Option and Appreciation Rights Plan, which plan provides for the issuance of incentive options, non-qualified options and stock appreciation rights (1995 Director Plan).
The 1995 Director Plan provides for automatic and discretionary grants of stock options which qualify as incentive stock options (Incentive Options) under Section 422 of the Internal Revenue Code of 1986, as amended (Code), as well as options which do not so qualify (Non-Qualified Options) to be issued to directors. In addition, stock appreciation rights (SARs) may be granted in conjunction with the grant of Incentive Options and Non-Qualified Options. No SARs have been granted to date.
The 1995 Director Plan provides for the grant of Incentive Options, Non-Qualified Options and SARs to purchase up to 250,000 shares of common stock (subject to adjustment in the event of stock dividends, stock splits and other similar events). To the extent that an Incentive Option or Non-Qualified Option is not exercised within the period of exercisability specified therein, it will expire as to the then-unexercised portion. If any Incentive Option, Non-Qualified Option or SAR terminates prior to exercise thereof and during the duration of the 1995 Director Plan, the shares of common stock as to which such option or right was not exercised will become available under the 1995 Director Plan for the grant of additional options or rights to any eligible employees. The shares of common stock subject to the 1995 Director Plan may be made available from either authorized but unissued shares, treasury shares, or both.
The 1995 Director Plan also provides for the grant of Non-Qualified Options on a non-discretionary basis pursuant to the following formula: each member of the board of directors then serving shall receive a Non-Qualified Option to purchase 10,000 shares of common stock at an exercise price equal to the fair market value per share of the common stock on that date. Pursuant to such formula, directors received options to purchase 10,000 shares of common stock as of October 17, 1995, options to purchase 10,000 shares of common stock on January 2, 1996, and will receive options to purchase 10,000 shares of common stock on the first business day of each January. The number of shares granted to each board member was increased to 20,000 in 1998. In addition, the board member will receive 5,000 options for each committee membership. Each option is immediately exercisable for a period of ten years from the date of grant. I-Link has 190,000 shares of common stock reserved for issuance under the 1995 Director Plan. As of December 31, 2000,2002, options exercisable to purchase 170,000 shares of common stock at prices ranging from $1.00 to $1.25 per share are outstanding under the 1995 Director Plan. As of December 31, 2000,2002, options to purchase 60,000 shares have been exercised under the 1995 Director Plan.
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20
1995 EMPLOYEE STOCK OPTION PLANEmployee Stock Option Plan
In October 1995, the stockholders of I-Link approved adoption of I-Link's 1995 Employee Stock Option and Appreciation Rights Plan ("1995(1995 Employee Plan")Plan), which plan provides for the issuance of Incentive Options, Non-Qualified Options and SARs.
Directors of I-Link are not eligible to participate in the 1995 Employee Plan. The 1995 Employee Plan provides for the grant of stock options which qualify as Incentive Stock Options under Section 422 of the Code, to be issued to officers who are employees and other employees, as well as Non-Qualified Options to be issued to officers, employees and consultants. In addition, SARs may be granted in conjunction with the grant of Incentive Options and Non-Qualified Options. No SARs have been granted to date.
The 1995 Employee Plan provides for the grant of Incentive Options, Non-Qualified Options and SARs of up to 400,000 shares of common stock (subject to adjustment in the event of stock dividends, stock splits and other similar events). To the extent that an Incentive Option or Non-Qualified Option is not exercised within the period of exercisability specified therein, it will expire as to the then-unexercised portion. If any Incentive Option, Non-Qualified Option or SAR terminates prior to exercise thereof and during the duration of the 1995 Employee Plan, the shares of common stock as to which such option or right was not exercised will become available under the 1995 Employee Plan for the grant of additional options or rights to any eligible employee. The shares of common stock subject to the 1995 Employee Plan may be made available from either authorized but unissued shares, treasury shares, or both. I-Link has 400,000280,750 shares of common stock reserved for issuance under the 1995 Employee Plan. As of December 31, 2000,2002, options to purchase 302,000135,250 shares of common
stock have been granted under the plan and 182,750 were outstanding with an exercise price of $3.90 per share have been granted under the 1995 Employee Plan. As of December 31, 2000,2002, 119,250 options have been exercised under the 1995 Employee Plan.
1997 RECRUITMENT STOCK OPTION PLANRecruitment Stock Option Plan
In October 1997, the stockholders of I-Link approved adoption of I-Link's 1997 Recruitment Stock Option and Appreciation Rights Plan, which plan provides for the issuance of incentive options, non-qualified options and SARs (1997 Plan).
The 1997 Plan provides for automatic and discretionary grants of stock options, which qualify as incentive stock options (Incentive Options) under Section 422 of the Code, as well as options which do not so qualify (Non-Qualified Options). In addition, stock appreciation rights (SARs) may be granted in conjunction with the grant of Incentive Options and Non-Qualified Options. No SARs have been granted to date.
The 1997 Plan, as amended in 2000, provides for the grant of Incentive Options, Non-Qualified Options and SARs to purchase up to 7,400,000 shares of common stock (subject to adjustment in the event of stock dividends, stock splits and other similar events). The price at which shares of common stock covered by the option can be purchased is determined by I-Link's board of directors; however, in all instances the exercise price is never less than the fair market value of I-Link's common stock on the date the option is granted. To the extent that an Incentive Option or Non-Qualified Option is not exercised within the period of exercisability specified therein, it will expire as to the then unexercised portion. If any Incentive Option, Non-Qualified Option or SAR terminates prior to exercise thereof and during the duration of the 1997 Plan, the shares of common stock as to which such option or right was not exercised will become available under the 1997 Plan for the grant of additional options or rights. The shares of common stock subject to the 1997 Plan may be made available from either authorized but unissued shares, treasury shares, or both. As of December 31, 2000,2002, options to purchase 5,350,6732,118,024 shares of common stock have been grantedwere outstanding under the plan and 4,939,253 were outstanding
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$1.19$0.07 to $13.88 per share. As of December 31, 2000,
411,4202002, 411,545 options have been exercised under the 1997 Plan.
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2000 EMPLOYEE STOCK PURCHASE PLANEmployee Stock Purchase Plan
In October 2000, the stockholders of I-Link approved adoption of I-Link's 2000 Employee Stock Purchase Plan which plan provides for the purchase and issuance of common stock to all eligible employees (Stock Purchase Plan).
The purpose of the Stock Purchase Plan is to induce all eligible employees of I-Link (or any of its subsidiaries) who have been employees for at least three months to encourage stock ownership of I-Link by acquiring or increasing their proprietary interest in I-Link. The Stock Purchase Plan is designed to encourage employees to remain in the employ of I-Link. It is the intention of I-Link to have the Stock Purchase Plan qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Code, as amended ("Code")(Code) to issue shares of common stock to all eligible employees of I-Link (or any of I-Link's subsidiaries) who have been employees for at least three months.
The Stock Purchase Plan provides for the purchase of common stock in the aggregate, up to 2,500,000 shares of common stock (which number is subject to adjustment in the event of stock dividends, stock splits and other similar events). As of December 31, 2000, 23,494 shares of common stock had been
purchased under the Stock Purchase Plan. To the extent that an option is not exercised within the period of exercisability specified in the option, it will expire as to the then unexercised portion. If any option terminates prior to its exercise and during the duration of the Stock Purchase Plan, the shares of common stock as to which the option or right was not exercised will become available under the Stock Purchase Plan for the grant of additional options or rights to any eligible employee. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Edwards is ChairmanAs of I-Link's Board of Directors. Mr. Edwards resigned
his seat on the Compensation Committee effective April 29, 2000. David R.
Bradford is a non-employee director. Pending their election, Messrs. Chirite,
Silber and Reichmann will serve as non-employee directors of I-Link. See
"Information About Directors and Executive Officers" generally, and "Information
About Directors and Executive Officers--Employment Agreements" and "Information
About Directors and Executive Officers--Compensation of Executive Officers and
Directors" as well as "Information About I-Link Stock Ownership."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Compensation of Executive Officers and Directors" for descriptions of
the terms of employment and consulting agreements between I-Link and certain
officers, directors, and other related parties.
Winter Harbor, LLC purchased an ownership interest in Tenfold Corporation, a
consulting company with which we contracted to develop a new internal
information system. In March 1999, Winter Harbor transferred ownership of the
investment to First Media TF Holdings, LLC, an affiliate of Winter Harbor, LLC.
First Media TF Holdings, LLC beneficially owns 10.6% of Tenfold's common stock.
Our referral to Tenfold did not come through Winter Harbor, and Winter Harbor
played no part in the negotiation of such consulting arrangement. In the first
quarter of 1999, we concluded that the developmental internal information system
would not significantly enhance our existing billing and information systems or
meet our internal information needs and accordingly did not justify paying
additional contracted expenses of approximately $1,000,000. Accordingly, we
recorded a write-down on the in-process system development of $1,847,288.
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TRANSACTIONS WITH WINTER HARBOR, L.L.C.
Winter Harbor, L.L.C. (Winter Harbor) is owned by First Media, L.P., a
private media and communications company which is a private investment
principally of Richard E. Marriott and his family. I-Link's general counsel,
David E. Hardy, is a brother of Ralph W. Hardy, Jr. who is general counsel and a
minority equity holder in Winter Harbor. David E. Hardy has no ownership in or
association with Winter Harbor. As a result of this relationship, as well as
personal relationships of David E. Hardy with the principals of Winter Harbor,
discussions were initiated which led to Winter Harbor's investments in I-Link,
which are summarized below.
Between January 1999 and March 2001, I-Link entered into numerous financing
arrangements with Winter Harbor including a bridge loan facility, standby letter
of credit, financing agreements, and lines of credit. In consideration for
providing these financing arrangements, Winter Harbor was granted certain notes
and warrants by I-Link. Winter Harbor also purchased for cash and exchange of
debt and interest shares of preferred stock and converted debt into additional
warrants. As a result of all of these transactions, as of March 1, 2001, Winter
Harbor held warrants to purchase 33,540,000December 31, 2002, 58,012 shares of common stock 14,404
shares of Series N preferred stock, and 4,122 shares of Series M convertible
stock.
On March 1, 2001 I-Link entered into a Warrant Exchange Agreement with
Winter Harbor. Pursuant to the terms and provisions of this Agreement, Winter
Harbor agreed to assign, transfer, convey and deliver to I-Link warrants to
acquire 33,540,000 shares of common stock of I-Link beneficially owned by Winter
Harbor (including 5,000,000 warrants issued upon conversion of the convertible
debt discussed above) in exchange for the issuance by I-Link to Winter Harbor of
5,000,000 shares of I-Link's common stock. As a result of this warrant exchange,
Winter Harbor is no longer the principal beneficial owner of the Company's
outstanding capital stock as the term "beneficial owner"had been purchased under the Securities
Exchange Act of 1934.
TRANSACTIONS WITH COUNSEL CORPORATION
On March 1, 2001 I-Link entered into the Loan Agreement with Counsel
Communications, LLC (Counsel LLC), a wholly-owned subsidiary of Counsel
Corporation (U.S.), (collectively, Counsel). On February 26, 2001, I-Link and
Counsel entered into a binding term sheet, which term sheet contemplated both a
financing transaction with Counsel by means of a Loan Agreement and a strategic
acquisition of Nexbell Communications, Inc. by means of an Agreement and Plan of
Merger. Under the terms of the Loan Agreement, Counsel LLC agreed to make
periodic loans to I-Link in the aggregate principal amount not to exceed
$10,000,000 (subsequently increased to $12,000,000 on May 8, 2001), $3,000,000
of which principal amount was available to I-Link immediately upon the execution
of the Loan Agreement. In connection with the Loan Agreement, I-Link executed a
Loan Note payable to Counsel Corporation (U.S.) on the maturity date, also dated
March 1, 2001, in the principal amount of $10,000,000 (Loan Note) at an interest
rate of nine percent (9%) per annum. The Loan Note was subsequently amended to
increase the principal amount loaned to I-Link from $10,000,000 to $12,000,000
on May 8, 2001.
The $12,000,000 capital investment by Counsel was structured as a three-year
note convertible, at the option of Counsel, into the shares of common stock of
I-Link at a conversion price of $0.56 per common share (Conversion Price),
representing 105% of the average closing transaction price of I-Link's common
shares over the consecutive five-day trading period ending February 26, 2001,
the date on which I-Link and Counsel executed the Binding Term Sheet. The
Conversion Price is subject to adjustment in accordance with the terms and
provisions of the Loan Agreement. The Loan Agreement also provides for
traditional anti-dilution protection and is subject to certain events of
default. Proceeds to I-Link will be a maximum of $12,000,000 less debt issuance
costs of approximately $700,000.
By executing the Loan Agreement, I-Link granted Counsel LLC a first priority
security interest in all of I-Link's assets owned at the time of the execution
of the Loan Agreement or acquired after the
21
execution, including but not limited to I-Link's accounts, general intangibles,
inventory, equipment, books and records, and negotiable instruments held by
I-Link. The Loan Agreement also included demand registration rights for the
common stock issuable upon conversion of the Loan Agreement.
On March 1, 2001 I-Link entered into a Securities Support Agreement with
Counsel LLC for the purposes of providing certain representations and
commitments by I-Link to Counsel LLC. Under the terms and provisions of this
Securities Support Agreement, I-Link agreed to appoint two designees of Counsel,
reasonably acceptable to I-Link, to the board of directors of I-Link.
Immediately following the initial funding of the Loan Note, I-Link agreed to
solicit the proxies of I-Link's shareholders to elect three additional nominees
designated by Counsel. I-Link's Compensation and Audit Committees will each
include at least one Counsel director. I-Link also agreed to commit to various
corporate governance restrictions concerning the sale and disposition of
I-Link's assets, mergers and acquisitions, incurring funded indebtedness.
On March 1, 2001, Winter Harbor and First Media, L.P., the parent company of
Winter Harbor (collectively, Winter Harbor), and Counsel entered into a
SecuritiesStock Purchase Agreement. Winter Harbor and Counsel conducted separate and
independent negotiations concerning the purchase by Counsel of the Series M and
N preferred stock of I-Link then held by Winter Harbor. I-Link was not a party
to this transaction. Under the terms of the Securities Purchase Agreement,
Counsel agreed to purchase from Winter Harbor all of the debt and equity
securities held by Winter Harbor in I-Link, including shares of Series M and N
preferred stock, beneficially owned by Winter Harbor for $5,000,000 aggregate
consideration.
On March 7, 2001, as part of the agreements discussed above, Counsel
converted all of the Series M and N convertible preferred stock it obtained from
Winter Harbor into 61,966,057 shares of I-Link's common stock. The Series N
shares were converted at an equivalent of $1.25 per common share and Series M
shares at $0.56 per common share.
On April 17, 2001 I-Link entered into an Agreement and Plan of Merger
(Agreement) by and among I-Link and I-Link Acquisition Corp., a Delaware
corporation and I-Link's wholly owned subsidiary (Merger Sub), on the one hand,
and WebToTel, Inc., a Delaware corporation (WebToTel), Counsel, and certain
other shareholders including DHR International and Hayes Reilly, on the other
hand. Counsel is both the principal shareholder of WebToTel and I-Link's
principal beneficial stockholder. WebToTel is the parent company of Nexbell
Communications, Inc. In the Agreement, the Merger Sub agreed to be merged with
WebToTel and the outstanding shares of WebToTel's common stock, par value $0.001
per share were converted into 17,454,333 shares of I-Link's common stock. On
April 17, 2001, each share of WebToTel's common stock issued and outstanding, by
virtue of the merger and without any action on the part of these holders, was
converted into the right to receive 0.1313 of a share of I-Link's common stock.
Each share of the Merger Sub's common stock was converted into one share of
common stock of WebToTel. Each shareholder surrendered its certificate of
WebToTel's common stock to I-Link and received I-Link shares of common stock in
exchange for the portion of the consideration into which the shares of WebToTel
common stock represented by these certificates were converted. I-Link issued
17,434,489 shares of I-Link common stock to Counsel, 10,914 shares of I-Link
common stock to DHR International, and 8,930 shares of I-Link common stock to
Hayes Reilly, an aggregate of 17,454,333 shares of I-Link common stock.
Nexbell financial statements for the year ended December 31, 2000 are
incorporated by reference in this Proxy Statement and are being delivered to the
stockholders with this Proxy Statement. The unaudited pro forma combined
condensed financial statements at March 31, 2001 are included in this Proxy
Statement as Appendix D.
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On June 6, 2001, I-Link and Counsel Corporation (Counsel) entered into a
Loan and Security Agreement (Loan Agreement). Under the terms of the Loan
Agreement, any monies advanced to I-Link between June 6, 2001 and April 15,
2002, in the amount not to exceed $10,000,000, will be governed by the terms and
provisions of the Loan Agreement. In connection with the Loan Agreement, I-Link
will execute a note payable to Counsel, due June 6, 2002, at an interest rate of
ten percent (10%) per annum.
By executing the Loan Agreement, I-Link will grant Counsel a security
interest in all of I-Link's assets owned at the time of the execution of the
Loan Agreement or acquired after the execution, including but not limited to
I-Link's accounts, general intangibles, inventory, equipment, books and records,
and negotiable instruments held by I-Link.
As of the date of this filing, approximately $3.23 million of the total loan
amount was funded and approximately $6.77 million is available for future
funding under the terms of the credit facility.
TRANSACTION WITH WORLDXCHANGE COMMUNICATIONS, INC.
On June 4, 2001, I-Link Incorporated through it's wholly-owned subsidiary
WorldxChange Corp., (f/k/a PT-1 Counsel, Inc., a/k/a PT-I Long Distance, Inc.),
a Delaware corporation (Buyer or Subsidiary), entered into a Multi-Party
Agreement (Agreement) with Counsel Corporation, a Canadian corporation (Counsel
Corp.), WorldxChange Communications, Inc., the debtor-in-possession (Debtor),
George Farley, in his capacity as Trustee of the D&K Grantor Retained Annuity
Trust, a holder in due course of a security interest in the Purchased Assets (as
the term is defined below) (Trust), and with the consent as to specified
provisions of the Official Committee of Unsecured Creditors. Under the terms and
provisions of the Agreement, Counsel Corp. designated the Buyer, as its
affiliate, to assume all of Counsel Corp.'s rights and responsibilities with
respect to the Debtor's assets purchased by Counsel Corp. at an auction
conducted under the supervision of the United States Bankruptcy Court for the
Northern District of Illinois, Eastern Division (Bankruptcy Court), in the
matter known as In re: World Access, Inc., et al., Case No. 01-B-14633 held on
May 24, 2001 (Purchased Assets). The Bankruptcy Court entered an Order Approving
Auction Sale on May 25, 2001.
The Purchased Assets included all of the assets employed in the Debtor's
operations in the United States and consisted of the Debtor's equipment,
inventory, retail long distance business, accounts receivable, licenses,
permits, authorizations, software programs and related technology. On June 4,
2001 (Closing), the Debtor transferred the Purchased Assets to Buyer pursuant to
a Debtor's Bill of Sale and the Trust received $13,000,000 consideration paid by
Counsel for its acquisition of the Purchased Assets. (The cash consideration
represents an advance to the Subsidiary of funds necessary to purchase the
Purchased Assets under that certain Term Loan extended by Counsel to the
Subsidiary, and discussed below in detail.)
Under the terms of the Agreement, the Buyer has the right to cause the
Debtor to assume or reject, at Buyer's election, each of the Debtor's
telecommunications equipment leases, carrier and service agreements and other
executory contracts. On June 27, 2001, the Buyer and Telecommunications Finance
Group (Siemens Carrier networks, LLC) (Siemens) entered into eight (8) separate
equipment leases pursuant to which Buyer leased all telecommunications equipment
previously leased from Siemens by the Debtor. The equipment leases have the
following terms: (1) each lease term is 48 months commencing June 2, 2001 with
the first payment due July 1, 2001, (2) each lease rate is 8% percent, (3) for
the first six months of each lease term, the aggregate monthly payments are
$150,000 per month plus applicable sales tax, (4) the remaining forty-two
monthly lease payments total $231,361 per month plus applicable sales tax,
(5) the fair market value buyout option under each lease will be no greater than
10 1/2% of the lease equipment value, and (6) the aggregate leased equipment
value is $9,000,000.
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The Buyer also has an exclusive right to retain the first $2,700,000 of any
sums collected on the Debtor's wholesale accounts receivable. Any sums over and
above the sum of $2,700,000 collected on the Debtor's wholesale accounts
receivable will be remitted by the Buyer to the Trust, as those sums are
received. As of the date of this filing, I-Link provides no assurance as to
whether it will be successful in its efforts to collect sums on the Debtor's
wholesale accounts receivable, if any, as it was anticipated under the terms and
provisions of the Agreement.
To fund the acquisition of the Purchased Assets, Counsel Corp. agreed to
provide a secured loan to I-Link in the aggregate amount of $15,000,000,
$13,000,000 of which proceeds were utilized. The terms and provisions of the
Term Loan are described in the June 3, 2001 non-binding term sheet by and
between I-Link and Counsel (the Term Sheet) and in the June 4, 2001 Secured Term
Loan agreement by and between the same parties (collectively, the Term Loan).
The Term Loan is secured against all assets of I-Link and the Subsidiary and
guaranteed by I-Link. Outstanding balances (including any accrued and unpaid
interest) under the Term Loan bear interest of 10% per cent per annum and are
payable quarterly in arrears and in cash on the last business day of each
quarter. The payment of cash interest by the Subsidiary or I-Link may be waived
by Counsel. Any interest payment waiver executed by Counsel will not impact the
accrual of interest on the Term Loan. The Term Loan will mature one year after
the Closing. The Term Loan maturity date may be extended upon mutual agreement
of both Counsel and I-Link. The Term Loan may be prepaid at any time prior to
the maturity, without penalty.
At Closing, I-Link issued to Counsel warrants to purchase 5,000,000 shares
of common stock of I-Link at an exercise price of $0.60 per share. If the Term
Loan is not repaid within three months of the Closing, I-Link will issue Counsel
warrants to purchase an additional 5,000,000 shares of common stock of I-Link at
an exercise price of $0.60 per share. Similarly, if the Subsidiary does not
repay the Term Loan within the six months of the Closing, I-Link will issue
Counsel warrants to purchase an additional 5,000,000 shares of common stock of
the Company at an exercise price of $0.60 per share.
In any event, the Subsidiary must make compulsory prepayments from the
following proceeds:
- 100% of the net proceeds from the funding of an accounts receivable
lending facility or future debt issuance by the Subsidiary; or
- 100% of the net proceeds from asset sales by the Subsidiary or I-Link in
excess of an amount to be determined; or
- 50% of the net proceeds from the future issuance of equity or
equity-linked securities by I-Link, excluding net proceeds used to make
acquisitions and net proceeds used to fund any approved expanded business
plan.
Presently, I-Link's Articles of Incorporation authorize the issuance of up
to 150,000,000 shares of common stock, of which 112,600,636 shares are issued
and outstanding at the close of business on the Record Date. I-Link may not have
a sufficient number of shares of common stock authorized for issuance under
I-Link's warrants issuable to Counsel under the provisions of the Term Loan
arrangement discussed above unless our Proposal 3 relating to an amendment to
the Articles of Incorporation of I-Link is approved to increase our authorized
number of shares of Common Stock from 150,000,000 to 300,000,000 shares.
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INDEPENDENT PUBLIC ACCOUNTANTS
PricewaterhouseCoopers LLP has been selected independent accountants for the
fiscal year 2001. Representatives of PricewaterhouseCoopers are expected to be
present at the stockholders annual meeting. They will have an opportunity, if
they so desire, to make a statement and respond to appropriate questions from
the shareholders. The audit committee has considered the compatibility of
non-audit services by PricewaterhouseCoopers in relationship to maintaining the
auditor's independence.
For the calendar year 2000, fees to PricewaterhouseCoopers LLP were as
follows:
- audit fees of approximately $102,000 of which an aggregate amount of
$23,000 had been billed through December 31, 2001.
- all other fees in 2000 were $111,000.
- there were no fees paid for financial information systems design and
implementation.
PROPOSAL 1
TO ELECT TWO NEW CLASS III DIRECTORS, EACH TO SERVE FOR THREE YEARS AND UNTIL
HIS SUCCESSOR HAS BEEN DULY ELECTED AND QUALIFIED; AND TO ELECT ONE CLASS II
DIRECTOR TO SERVE FOR THE TERM OF HIS CLASS AND UNTIL HIS SUCCESSOR HAS BEEN
DULY ELECTED AND QUALIFIED.
The board of directors has concluded that the election of Messrs. Chirite
and Reichmann as Class III Directors and of Mr. Silber as a Class II Director
are in I-Link's best interest and recommends approval of their election.
Biographical information concerning Messrs. Chirite, Reichmann and Silber can be
found under "Information About Directors and Executive Officers." The remaining
directors will continue to serve in their positions for the remainder of their
respective terms.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy will be voted for the election of Messrs. Chirite, Reichmann and
Silber. Although the board of directors of I-Link does not contemplate that any
of these individuals will be unable to serve, if such a situation arises prior
to the annual meeting, the persons named in the enclosed proxy will vote for the
election of any other person the board of directors may choose as a substitute
nominee.
VOTE REQUIRED FOR APPROVAL
Each of Messrs. Chirite, Reichmann and Silber must receive a plurality of
the votes cast in order to be elected. The board of directors unanimously
recommends a vote FOR the election of Messrs. Chirite, Reichmann and Silber.
PROPOSAL 2
TO APPROVE A REVERSE SPLIT OF I-LINK'S COMMON STOCK, TO BE IMPLEMENTED IN THE
DISCRETION OF THE BOARD OF DIRECTORS, IF AND TO THE EXTENT THAT THE BOARD OF
DIRECTORS DEEMS APPROPRIATE TO MAINTAIN THE LISTING OF I-LINK'S COMMON STOCK ON
THE NASDAQ SMALLCAP MARKET.
The board of directors has adopted a resolution authorizing action to adopt
and effect a reverse split of I-Link's common stock upon the terms and
conditions described below. The board of directors took this action in response
to actions taken by The Nasdaq Stock Market (Nasdaq) to delist I-Link's common
stock because of our alleged failure to comply with various continued listing
criteria of Nasdaq, including the minimum bid price requirement of $1.00 per
share, the market capitalization requirement of $35,000,000, and the shareholder
approval requirement (it was alleged that I-Link's acquisition of Nexbell
Communications, Inc., from its parent company, WebToTel, Inc., should have
25
been approved by I-Link's stockholders). On May 17, 2001, a hearing was held
before a panel of the Nasdaq Listing Qualifications Panel (Panel), relating to
the various concerns raised by the staff of the Nasdaq Listing Qualifications
Hearing Department (Staff).
On July 17, 2001, the Panel issued a decision to continue listing of
I-Link's securities on Nasdaq in accordance with the exception from the
continued listing criteria. Under the terms and conditions of the exception,
I-Link is required to meet certain interim performance, corporate governance and
disclosure milestones. Specifically, on or before August 3, 2001, I-Link must
file a proxy statement with the Securities and Exchange Commission and Nasdaq
evidencing I-Link's intent to seek shareholder approval for a reverse stock
split to comply with the minimum bid price of $1.00 per share. Also, the proxy
statement must evidence I-Link's intent to seek shareholder ratification for the
issuance of shares in connection with the April 17, 2001 WebToTel, Inc. merger
(NexBell transaction) and the March 1, 2001 loan transaction with Counsel
Corporation (Note transaction). On July 30, 2001, I-Link filed a revised
preliminary proxy statement with the SEC and Nasdaq. I-Link's compliance with
the first requirement necessary for continued listing on the Nasdaq SmallCap
market was acknowledged in the Staff correspondence dated August 9, 2001. As a
result of its compliance with the foregoing requirement, the Panel determined to
continue the continued listing exception through September 5, 2001. On
August 16, 2001, the Nasdaq Staff satisfied I-Link's request for an extension to
effect the proposed reverse stock split and extended the compliance deadline
from September 5, 2001 to September 13, 2001. Upon complying with these
milestones, I-Link must, on or before September 13, 2001, submit to Nasdaq
documentation evidencing receipt of shareholder ratification of share issuances
in connection with the NexBell and Note transactions. In addition, on or before
September 13, 2001, I-Link must demonstrate a closing bid price of at least
$1.00 per share (through a reverse stock split or share price appreciation) and
must maintain its share price above $1.00 for at least 10 consecutive trading
days. Finally, on or before September 13, 2001, I-Link must evidence market
capitalization of at least $35,000,000 criteria also for at least 10 consecutive
trading days.
The exception will expire on September 13, 2001 subject to these milestones
being achieved and evidenced by I-Link. In the event that I-Link is deemed to
have met all of the terms of the exception, I-Link's securities will continue to
be listed on Nasdaq. I-Link has presented the Panel with a definitive plan that
should enable the company to achieve compliance with continued listing criteria
during the period of time set forth in the Panel's decision. However, there is
no assurance that it will be able to do so. If the stockholders do not approve
the reverse stock split proposal and the stock price does not otherwise increase
to greater than $1.00 per share, we expect our common stock to be delisted after
the expiration of the exception on September 13, 2001. Should I-Link's
securities cease to be listed on Nasdaq, the company's securities may continue
to be listed on the OTC-Bulletin Board. As of the date of this filing, I-Link is
not in compliance with the Nasdaq market capitalization continued listing
criterion. There is no assurance that I-Link will comply with this requirement
even if the proposed reverse stock split is effected as described in this proxy
statement. Under the terms of the Panel's July 17, 2001 decision (as well as its
August 16, 2001 reiteration), I-Link's non-compliance with the market
capitalization criterion, on or before September 13, 2001, will result in the
de-listing of its securities from the Nasdaq SmallCap market.
The board of directors has authorized and requested that you approve a
reverse split of the outstanding shares of common stock in a proportion to be
determined by the board of directors; and further that the board of directors be
empowered to forego the implementation of the reverse split, if in its exercise
of its fiduciary obligations the board of directors deems the reverse split not
to be in the best interests of stockholders. Assuming that this proposal is
approved by the stockholders, it is the board of directors' intention to
implement a reverse split if necessary to maintain the Nasdaq listing. If the
issues are resolved by virtue of a rebound in the bid price for shares of
I-Link's common stock that is satisfactory to the Panel then the board of
directors will not take action to implement the reverse split. If, however, the
bid price deficiency does not rectify itself, then if you approve this proposal,
the
26
board of directors will have to determine whether to effect the reverse split,
as well as to determine the ratio of any reverse split to be effected. In
determining the ratio of any reverse split to be effected, the board of
directors will consider various factors including market conditions, the
pre-split bid price per share, and the tendency of stock prices to trade at
lower prices after reverse splits are implemented. It is the current thinking of
the board of directors that any such split would be at a level of approximately
one for six. As of August 16, 2001, the closing price of I-Link's common stock
was $0.26. I-Link shall not issue fractions of shares of new common stock in
connection with any split. Stockholders who, immediately prior to the effective
time of the reverse split, own a number of shares of common stock which is not
evenly divisible by the reverse split ratio shall, with respect to the
fractional interest, be issued a number of shares of new common stock, be
rounded to the nearest whole number.
The reverse stock split will not have a significant affect any stockholder's
proportionate equity interest in I-Link. The reverse stock split will not have
any material impact on the aggregate capital represented by the shares of common
stock for financial statement purposes. Nor will adoption of the reverse stock
split reduce the number of shares of common stock authorized for issuance nor
will it change the par value of the common stock, but it will reduce the number
of shares of common stock presently issued and outstanding. However, the
proposed reverse split will have the effect of increasing the number of I-Link's
common stock shares available for issuance. The rights and privileges of holders
of shares of common stock will remain the same after the reverse stock split.
The decrease in the number of shares of common stock outstanding as a
consequence of the reverse stock split should increase the per share price of
the common stock, which may encourage greater interest in the common stock and
possibly promote greater liquidity for I-Link's stockholders. However, the
increase in the per share price of the common stock as a consequence of the
reverse stock split may be proportionately less than the decrease in the number
of shares outstanding. In addition, any increased liquidity due to any increased
per share price could be partially or entirely offset by the reduced number of
shares outstanding after the reverse stock split. There can be no assurance that
the favorable effects described above will occur, or that any increase in the
per share price of the common stock resulting from the reverse stock split will
be maintained for any period of time.
The market price of our common stock will also be based on our performance
and other factors, some of which are unrelated to the number of shares
outstanding. If the reverse stock split is effected and the market price of
I-Link's common stock declines, the percentage decline as an absolute number and
as a percentage of our overall market capitalization may be greater than would
occur in the absence of reverse stock split. In addition, the reduced number of
shares that would be outstanding after the reverse stock split will likely
significantly reduce the trading volume of I-Link's common stock and could
otherwise adversely affect the liquidity of I-Link's common stock.
The management of I-Link does not currently intend to engage in any future
transactions or business combinations which would qualify I-Link for
deregistration of the common stock from the reporting and other requirements of
federal securities laws.
After the stockholders' vote for this proposal and the board of directors'
determination that the reverse stock split is in I-Link's and the stockholders'
best interests, I-Link's board of directors will determine the reverse stock
split ratio and the effective date of this reverse stock split (Effective Date).
I-Link will then file Articles of Amendment to I-Link's Articles of
Incorporation with the Department of State of the State of Florida stating the
reverse stock split ratio. Appendix B, is attached at the end of this document
and contains the proposed language for Article III, Paragraph (A). We reserve
the right to modify the form of the proposed amendment to the extent that it may
be necessary to do so in order to comply with applicable law. The reverse stock
split will become effective at the time specified in the Articles of Amendment,
which will most likely be some time shortly after the filing of the Articles of
Amendment. Commencing on the Effective Date, each currently outstanding stock
certificate will be deemed for all corporate purposes to evidence ownership of
the reduced number of
27
shares resulting from the reverse stock split. Currently outstanding
certificates do not have to be surrendered in exchange for new certificates in
connection with the reverse stock split. Rather, new stock certificates
reflecting the number of shares resulting from the reverse stock split will be
issued as currently outstanding certificates are transferred. However, I-Link
will provide stockholders with instructions as to how to exchange their
certificates and encourage them to do so. I-Link will obtain a new CUSIP number
for I-Link's shares of common stock.
To the extent a stockholder holds a number of shares that would result in a
residual fractional share, I-Link will issue to that stockholder the next whole
number of shares of new common stock. As of July 23, 2001, I-Link had 663
stockholders of record and believes that the total number of beneficial holders
of the common stock of I-Link to be approximately 16,500, based on information
received from the transfer agent and those brokerage firms who hold I-Link's
securities in custodial or "street" name. After the reverse stock split I-Link
estimates that, based on the stockholdings as of July 23, 2001, I-Link will
continue to have approximately the same number of stockholders. Counsel has not
indicated as to how it is going to vote on Proposal 2.
There can be no assurance that the market price of the common stock after
the reverse stock split will be a multiple represented by the reverse stock
split ratio times the market price before the reverse stock split, that this
price will either exceed or remain in excess of the current market price, or
that the common stock will continue to be listed on Nasdaq.
OPTIONS AND OTHER WARRANTS
I-Link has outstanding various options and other warrants to acquire up to
an aggregate of approximately 15,423,000 shares of common stock at various
exercise prices as of July 23, 2001. Pursuant to the adjustment provisions set
forth in the governing documents the amount of common stock issuable pursuant to
these options and warrants will be reduced by dividing the total number by the
reverse stock split ratio, and the exercise prices will be increased by a factor
of the reverse stock split ratio.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences of the reverse stock split will be as
set forth below. The following information is based upon existing law which is
subject to change by legislation, administrative action and judicial decision
and is therefore necessarily general in nature. Therefore, stockholders are
advised to consult with their own tax advisors for more detailed information
relating to their individual tax circumstances.
The reverse stock split will be a tax-free recapitalization for I-Link and
I-Link's stockholders to the extent that currently outstanding shares of stock
are exchanged for other shares of stock after the split.
The new shares in the hands of a stockholder will have an aggregate basis
for computing gain or loss equal to the aggregate basis of shares of stock held
by that stockholder immediately prior to the reverse stock split if no
fractional shares are present. If fractional shares are present as a result of
the split, and the stockholder realizes a gain on the exchange, the stockholder
will recognize a taxable gain equal to the lesser of the cash received or the
gain realized. If fractional shares are present and a loss is realized on the
exchange, the loss is not recognized, but rather the loss must be deferred until
the stockholder disposes of the new stock in a taxable transaction. The
stockholder's basis in the new stock is equal to the basis in the stock
exchanged less any cash received plus gain recognized, if any.
28
VOTE REQUIRED FOR APPROVAL
All shares of I-Link's common stock and the Series N preferred stock, voting
on an as-converted basis and voting as a single class, will be entitled to vote
on Proposal 2. The approval of a reverse split of I-Link's common stock, to be
implemented in the discretion of the board of directors, if and to the extent
that the board of directors deems appropriate to maintain the listing of
I-Link's common stock on The Nasdaq SmallCap Market must be approved by (a) a
vote of at least the majority of the holders of I-Link's issued and outstanding
common stock and the Series N preferred stock who hold five percent or more of
I-Link's outstanding common stock, and (b) a vote of a majority of shares issued
and outstanding of I-Link common stock including the Series N preferred stock on
an as-converted basis held by I-Link's officers, directors, and those persons
who hold five percent or more of I-Link's outstanding common stock. Therefore,
since a majority of all outstanding voting shares is required, any shares that
are not voted, including shares represented by a proxy which is marked
"abstain," will count "against" Proposal 2. The board of directors unanimously
recommends a vote FOR the approval of the reverse split of I-Link's common
stock.
PROPOSAL 3
TO APPROVE AN AMENDMENT TO I-LINK'S ARTICLES OF INCORPORATION INCREASING
I-LINK'S AUTHORIZED NUMBER OF SHARES OF COMMON STOCK (PAR VALUE $.007 PER SHARE)
FROM 150,000,000 TO 300,000,000 SHARES.
The board of directors recommends increasing I-Link's authorized number of
shares of common stock, par value $.007 per share, from 150,000,000 to
300,000,000 shares. Specifically, the board of directors recommends amending
Article III of the Articles of Incorporation by deleting paragraph (a) in its
entirety and substituting the following language:
"(a) Three Hundred Million (300,000,000) shares of common stock, having a
par value of $.007 per share (the "Common Stock")."
Appendix B, attached at the end of this document, contains the existing
language of Article III, Paragraph (a) as well as the proposed language. The
proposed amendment to I-Link's Articles of Incorporation will be filed with the
Department of State of the State of Florida if this Proposal 3 is approved. We
reserve the right to modify the form of the proposed amendment to the extent
that it may be necessary to do so in order to comply with applicable law.
REASONS AND EFFECT OF THE INCREASE IN AUTHORIZED NUMBER OF SHARES
Presently, I-Link's Articles of Incorporation authorize the issuance of up
to 150,000,000 shares of common stock, of which 112,600,636 shares were issued
and outstanding at the close of business on the Record Date. The authorized
number of shares of preferred stock is and will remain 10,000,000 shares.
I-Link may require additional authorized shares of I-Link's common stock for
issuance in the future based upon various outstanding option and purchase plans,
warrants and other commitments by I-Link as issuances under these various plans
may exceed the number of currently authorized, but unissued shares of I-Link.
Based upon the existence of these various option and purchase plans,
warrants and other commitments by I-Link, the board of directors believes it
necessary to authorize additional shares of I-Link's common stock for possible
future issuance. In addition, the board of directors believes that it is prudent
to have additional shares of common stock available for other proper general
corporate purposes approved by the board of directors including strategic
alliances, acquisitions, equity financings and grants of stock options. To the
extent that the board determines to issue additional shares in the future, such
issuance could dilute the voting power of existing shareholders, including a
person seeking control of I-Link and, thus, deterring or rendering more
difficult a merger, tender offer, proxy contest
29
or an extraordinary corporate transaction. Presently, we are not aware of any
present efforts of any persons to accumulate I-Link's common stock or to obtain
control of I-Link, and the proposed increase in authorized shares of common
stock is not intended to be an anti-takeover device.
The proposed amendment will authorize additional future issuances of up to
150,000,000 shares of common stock, thus increasing the total authorized common
stock to 300,000,000 shares. The authorized number of shares of preferred stock
will remain at 10,000,000 shares. Therefore, as a result of the proposed
amendment, I-Link's total authorized capital stock will increase to 310,000,000
shares. The proposed amendment will not take effect until it is filed with the
Department of State of the State of Florida.
There can be no assurances, nor can the board of I-Link predict what effect,
if any, this proposed amendment will have on the market price of I-Link's common
stock.
VOTE REQUIRED FOR APPROVAL
All shares of I-Link's common stock and the Series N preferred stock, voting
on an as-converted basis and voting as a single class, will be entitled to vote
on Proposal 3. The affirmative vote of a majority of the outstanding shares of
common stock and the Series N preferred stock on an as-converted basis, is
required for approval of an amendment of the Articles of Incorporation
increasing the authorized number of shares of common stock from 150,000,000 to
300,000,000 shares. The board of directors unanimously recommends a vote FOR
increasing the authorized number of shares of common stock from 150,000,000 to
300,000,000 shares.
PROPOSAL 4
TO APPROVE THE 2001 STOCK OPTION AND APPRECIATION RIGHTS PLAN.
On June 4, 2001 the board of directors recommended approval of the Plan.
2001 Stock Option and Appreciation Rights Plan (Plan) which is attached as
Appendix C. The purpose of the Plan is to induce I-Link's officers, directors,
employees and consultants or any of I-Link's subsidiaries who are in positions
to contribute materially to I-Link's growth and prosperity to remain with I-Link
by offering these individuals incentives and rewards in recognition of their
contributions to I-Link. The Plan applies to all grants of stock options and
stock appreciation rights (SARs) granted on or after the date the Plan is
approved or adopted by I-Link's directors unless otherwise indicated. As of
August 16, 2001, the market value of the 14,000,000 shares underlying the
options issuable under the Plan was $3,640,000.
Under the Plan,this plan, I-Link may issue options which will result in the issuance of up to an aggregate of 14,000,000 shares of I-Link common stock, par value $.007 per share. The Plan provides for options which qualify as incentive stock options (Incentive Options) under Section 422 of the Internal Revenue Code of 1986, as well as the issuance of non-qualified options (Non-Qualified Options). The shares issued by I-Link under the Plan may be either treasury shares or authorized but unissued shares as I-Link's board of directors may determine from time to time.
Pursuant to the terms of the Plan, I-Link may grant Non-Qualified Options and SARs only to officers, directors, employees and consultants of I-Link or any of I-Link's subsidiaries as selected by the board of directors or a committee appointed by the board. The Plan also provides for the Incentive Options to be available only to officers, directors, employees and consultants of I-Link or any of I-Link's subsidiaries as selected by the board of directors or a committee appointed by the board.
Options granted under the Plan must be evidenced by a stock option agreement in a form consistent with the provisions of the Plan. In the event that employment or service provided by a Plan participant is terminated for cause, any vested or unvested options, rights to any options, or SARs of the Plan participant will terminate immediately regardless of whether the option is qualified or
30
The price at which shares of common stock covered by the option can be purchased is determined by I-Link's board of directors; however, in all instances the exercise price is never less than the fair market value of I-Link's common stock on the date the option is granted. To the extent that an Incentive Option or Non-Qualified Option is not exercised within the period in which it may be exercised in accordance with the terms and provisions of the Plan described above, the Incentive Option or Non-Qualified Option will expire as to the then unexercised portion. To exercise an option,
22
the Plan participant must tender an amount equal to the total option exercise price of the underlying shares and provide written notice of the exercise to the Company. The right to purchase shares is cumulative so that once the right to purchase any shares has vested, those shares or any portion of those shares may be purchased at any time thereafter until the expiration or termination of the Option.
The Company intends to approve a new stock option plan at its 2003 Annual Meeting. In the event the new plan is approved, it is the intent of the Company to withdraw this 2001 Stock Option and Appreciation Rights Plan. The material terms and provisions of the 2003 Stock Option and Appreciation Rights Plan to be approved at the Annual Meeting are discussed in detail in Proposal 5 of this proxy statement. A copy of this 2003 Plan is included as Appendix E to this proxy statement.
Compensation Committee Interlocks and Insider Participation
Messrs. Heaton, Toh, Reichmann and Walter are non-employee directors of I-Link. Messrs. Silber, Shimer, Wasserson, Weintraub and Ms. Murumets are employees and officers of Counsel Corporation and I-Link. See "Information About Directors and Officers" and "Information About Directors and Executive Officers—Compensation of Executive Officers and Directors" as well as "Information About I-Link Stock Ownership."
Certain Relationships and Related Transactions
Transactions with Management
See also "Compensation of Executive Officers and Directors" for a description of employment agreements by and between I-Link and certain named executive officers. Additionally, in June 2002, the Company made a relocation loan of $100,000 (non-interest bearing) to Mr. Hilton. The loan is due on the earlier of June 2007 or upon sale of his former residence. While the loan is outstanding, payments are required equal to of 20% of any incentive awards (after the first $50,000) paid to Mr. Hilton. As of December 31, 2002, no payments on the loan had been made.
Transactions with Counsel Corporation
Amendments to the Articles of Incorporation. In July 2002, the Board of Directors approved an amendment to I-Link's Amended and Restated Articles of Incorporation (Articles of Incorporation) to delete Article VI thereof. Article VI of the Articles of Incorporation was added pursuant to an amendment and restatement of the Articles of Incorporation dated March 1, 1989 to read as follows:
"Any liquidation, reorganization, merger, consolidation, sale of substantially all of the corporation's assets, or the reclassification of its securities shall be approved by (a) holders of at least a majority of the issued and outstanding Common Stock held by other than officers, directors, and those persons who hold 5% or more of the outstanding Common Stock, and (b) a vote of a majority of shares of issued and outstanding Common Stock held by the Company's officers, directors, and those persons who hold 5% or more of the outstanding Common Stock."
Subsequently, the following "required vote" clause was added to Article VI as a result of the March 14, 1989 amendment to the Articles of Incorporation:
"Notwithstanding anything contained in these Articles of Incorporation to the contrary, the affirmative vote of the holders of at least 67% of the outstanding shares of the corporation then entitled to vote in the election of directors shall be required to amend, alter, or repeal, or to adopt any provision inconsistent with this Article VI."
The original purpose of this Article VI was to provide an additional measure designed to reduce I-Link's vulnerability to unsolicited takeover attempts through amendment of the corporate charter or bylaws or otherwise. Since Counsel Communications holds in excess of 68% of the Company's voting
23
equity securities, the Board of Directors believes that Article VI is no longer required to fulfill its original purpose and instead effectively restricts I-Link's ability to enter into transactions that may be in the best interests of its stockholders. Furthermore, under the terms and provisions of the Debt Restructuring Agreement (as discussed below), the Board of Directors is required to recommend approval and adoption of this proposal to stockholders and to include this proposal in the proxy statement materials distributed to I-Link stockholders in connection with the Annual Meeting of Stockholders.
If this proposal is approved, Counsel Communications will be able to cause the stockholder approval of any liquidation, reorganization, merger, consolidation, sale of substantially all of the assets of I-Link, or the reclassification of its securities. In addition, Counsel Communications might be able to take I-Link private. Under Section 607.1104 of the Florida Act, if Counsel Communications owned more than 80% of each class of I-Link's equity securities and if Proposal 3 is approved (the mechanics of the parent-subsidiary merger under the Florida Act is described below in this Proposal 3). Counsel Communications would be able to merge I-Link into Counsel Communications without the approval of stockholders other than Counsel Communications.
Counsel Communications entered into a settlement agreement with Winter Harbor, as amended, effective August 29, 2003, in order to finalize unresolved matters arising from the series of transactions entered into in March 2001 between the two organizations. Pursuant to that agreement, Counsel Communications received an additional 2,375,000 shares of I-Link Incorporated common stock from Winter Harbor. As part of this process, Winter Harbor has agreed that the $1,999,000 loan payable recorded by I-Link Incorporated plus accrued interest and previously reflected as owing to Winter Harbor has been assigned to Counsel Communications.
RSL Transaction. On December 10, 2002, WorldxChange completed the purchase of the Direct and Agent businesses of RSL COM U.S.A. Inc. (RSL). The acquisition included the assets used by RSL to provide long distance voice and data services, including frame relay, to small and medium size businesses (Direct Business), and the assets used to provide long distance and other voice services to small businesses and the consumer/residential market (Agent Business), together with the existing customer base of the Direct and Agent Businesses.
The purchase agreement was originally entered into between Counsel Communications and RSL and was assigned to WorldxChange in May 2002. The closing occurred on December 10, 2002 following receipt of all regulatory approvals. WorldxChange paid a purchase price of approximately $7.5 million, subject to certain closing balance sheet adjustments, and agreed to pay up to an additional $3 million on March 31, 2004, which contingent upon the achievement of certain revenue levels by the Direct and Agent Businesses for the year 2003. The purchase price of $7.5 million was financed by a loan from I-Link to WorldxChange that is due March 1, 2004. I-Link's loan to WorldxChange was financed by a convertible loan from Counsel Corporation. The loan from Counsel Corporation is convertible into common stock of I-Link at the exchange rate of $0.084 per share, which rate represented the average closing price of I-Link's common stock for the twenty trading days preceding December 10, 2002.
Of the additional $3.0 million purchase price, a minimum of $1 million is payable March 31, 2004. The remaining $2 million payment is contingent upon achievement of certain revenue levels by the Direct and Agent Businesses for the year 2003. The actual amount due will be prorated based upon 2003 Direct and Agent Businesses revenues between $25 million ($0 amount payable) to $35 million ($2.0 million payable).
See also "Compensation of Executive Officers and Directors" for a description of employment agreements by and between I-Link and certain named executive officers. See Proposal 3 of this Proxy Statement for a description of certain additional transactions between I-Link, Counsel Corporation and Counsel Communications.
24
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee selected PricewaterhouseCoopers LLP as the independent accountants of I-Link for the fiscal year ended December 31, 2002. Representatives of PricewaterhouseCoopers are expected to be present at the Annual Meeting. They will have an opportunity, if they so desire, to make a statement and respond to appropriate questions from the stockholders. The Audit Committee has considered the compatibility of non-audit services provided to I-Link by PricewaterhouseCoopers in relationship to maintaining the auditor's independence.
Audit fees
For the calendar year 2002 and 2001, I-Link paid to PricewaterhouseCoopers LLP audit fees of approximately $530,000 and $208,000, respectively, billed for professional services rendered for the audit of I-Link's annual financial statements and the reviews of the financial statements included in I-Link's financial statements included in its quarterly filings on Form 10-Q for the respective periods. The I-Link Audit Committee approved 100% of the foregoing services rendered by the auditors.
Audit-related fees
For the calendar year 2002 and 2001, I-Link paid to PricewaterhouseCoopers LLP fees of approximately $342,000 and $121,000 respectively, billed for assurance and related services by I-Link's auditors that are reasonably related to the performance of the audit or review of I-Link's financial statements included in I-Link's financial statements included in its quarterly filings on Form 10-Q for the respective periods. The services thus provided by I-Link's auditors included accounting consultations and audits in connection with acquisitions and consultation concerning financial accounting and reporting standards. The I-Link Audit Committee approved 100% of the foregoing services rendered by the auditors.
Tax fees
For the calendar year 2002 and 2001, I-Link paid to PricewaterhouseCoopers LLP fees of approximately $90,896 and $123,885, respectively, billed for tax compliance, tax advice and tax planning. The I-Link Audit Committee approved 100% of the foregoing services rendered by the auditors.
Financial Information Systems Design and Implementation fees
There were no fees paid in 2002 or 2001 related to financial information system design or implementation fees.
All other fees
There were no other fees paid in 2002 or 2001 not identified above.
PROPOSAL 1
TO ELECT TWO CLASS I DIRECTORS, EACH TO SERVE FOR THREE YEARS AND
UNTIL HIS SUCCESSOR HAS BEEN DULY ELECTED AND QUALIFIED.
The Board of Directors has concluded that the election of Messrs. Shimer and Weintraub as Class I Directors is in I-Link's best interest and recommends approval of their election. Biographical information concerning Messrs. Shimer and Weintraub can be found under "Information about Directors and Executive Officers." The remaining directors will continue to serve in their positions for the remainder of their respective terms.
25
Unless otherwise instructed or unless authority to vote is withheld, the enclosed proxy will be voted for the election of Messrs. Shimer and Weintraub. Although the Board of Directors of I-Link does not contemplate that any of these individuals will be unable to serve, if such a situation arises prior to the Annual Meeting, the persons named in the enclosed proxy will vote for the election of any other person the Board of Directors may choose as a substitute nominee.
Vote Required for Approval
All shares of I-Link's common stock and the Series N preferred stock, voting on an as-converted basis and voting as a single class, will be entitled to vote on Proposal 1. Each of Messrs. Shimer and Weintraub must receive a plurality of the votes cast in order to be elected. The Board of Directors unanimously recommends a voteFOR the election of Messrs. Shimer and Weintraub.
PROPOSAL 2
TO APPROVE AN AMENDMENT TO I-LINK'S ARTICLES OF INCORPORATION
CHANGING THE NAME OF THE COMPANY TO "ACCERIS COMMUNICATIONS INC."
General
On February 12, 2003, the Board of Directors determined that it was in I-Link's and its stockholders' best interests to amend its Articles of Incorporation to effect the name change from "I-Link Incorporated" to "Acceris Communications Inc." (Name Change Amendment) and that the Name Change Amendment be considered at the Annual Meeting. Upon approval of this proposal, Name Change Amendment will become effective by the filing of Articles of Amendment to our Articles of Incorporation with the Secretary of the State of Florida.
Principal Effects of and Reasons for Name Change
The Board of Directors concluded that changing I-Link's name would be in I-Link's best interests as the Company begins a new marketing initiative and informs the marketplace of the change in its strategic direction. Although I-Link will continue to explore opportunities to license its proprietary technology, WorldxChange now conducts the principal operations of I-Link. The Board of Directors believes that the name change will better reflect our business model going forward. Our stock trading symbol will not be affected by the Name Change Amendment, although we may seek to change our stock trading symbol to make it better reflect our new name once the Name Change Amendment is effective. The Name Change Amendment, if approved, will not affect the rights of any holder of our common stock, nor of any holder of any right to receive our common stock.
The amendment to the Articles of Incorporation will become effective upon approval by the stockholders and the filing of the Articles of Amendment to the Articles of Incorporation reflecting the Name Change Amendment with the Secretary of State of Florida. If approved by the stockholders, we anticipate that the Articles of Amendment will be filed as soon as practicable. The text of the proposed amendment to the Articles of Incorporation is provided in full in Appendix D of this proxy statement.
Vote Required for Approval
All shares of I-Link's common stock and the Series N preferred stock, voting on an as-converted basis and voting as a single class, will be entitled to vote on Proposal 2. The affirmative vote of a majority of the outstanding shares of common stock and the Series N preferred stock on an as-converted basis is required for approval of an amendment of the Articles of Incorporation changing the name of the Company to "Acceris Communications Inc." The Board of Directors unanimously recommends a voteFOR changing the name of the Company to "Acceris Communications Inc."
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PROPOSAL 3
TO APPROVE AN AMENDMENT TO I-LINK'S ARTICLES OF INCORPORATION
DELETING ARTICLE VI.
General
On July 25, 2002 the Board of Directors approved an amendment to I-Link's Amended and Restated Articles of Incorporation (Articles of Incorporation) to delete Article VI thereof. Article VI of the Articles of Incorporation was added pursuant to an amendment and restatement of the Articles of Incorporation dated March 1, 1989 to read as follows:
"Any liquidation, reorganization, merger, consolidation, sale of substantially all of the corporation's assets, or the reclassification of its securities shall be approved by (a) holders of at least a majority of the issued and outstanding Common Stock held by other than officers, directors, and those persons who hold 5% or more of the outstanding Common Stock, and (b) a vote of a majority of shares of issued and outstanding Common Stock held by the Company's officers, directors, and those persons who hold 5% or more of the outstanding Common Stock."
Subsequently, the following "required vote" clause was added to Article VI as a result of the March 14, 1989 amendment to the Articles of Incorporation:
"Notwithstanding anything contained in these Articles of Incorporation to the contrary, the affirmative vote of the holders of at least 67% of the outstanding shares of the corporation then entitled to vote in the election of directors shall be required to amend, alter, or repeal, or to adopt any provision inconsistent with this Article VI."
The original purpose of this Article VI was to provide an additional measure designed to reduce I-Link's vulnerability to unsolicited takeover attempts through amendment of the corporate charter or bylaws or otherwise. Since Counsel Communications beneficially holds approximately 86% of the Company stock, the Board of Directors believes that Article VI is no longer required to fulfill its original purpose and instead effectively restricts I-Link's ability to enter into transactions that may be in the best interests of its stockholders. Furthermore, under the terms and provisions of the Debt Restructuring Agreement (as discussed below), the Board of Directors is required to recommend approval and adoption of this Proposal 3 and to include this proposal in the proxy statement materials distributed to I-Link stockholders in connection with the Annual Meeting. As discussed below, appraisal rights (under the applicable Florida law, such rights are referred to as "dissenters' rights") will be available to stockholders with respect to the consideration of Proposal 3 of this Proxy Statement.
If this proposal is approved, Counsel Communications will be able to cause the stockholder approval of any liquidation, reorganization, merger, consolidation, sale of substantially all of the assets of I-Link, or the reclassification of its securities. In addition, Counsel Communications might be able to take I-Link private. Under Section 607.1104 of the Florida Act, if Counsel Communications owned more than 80% of each class of I-Link's equity securities and if Proposal 3 is approved (the mechanics of the parent-subsidiary merger under the Florida Act is described below in this Proposal 3). Counsel Communications would be able to merge I-Link into Counsel Communications without the approval of stockholders other than Counsel Communications.
Purposes and Effects of the Amended Debt Restructuring Agreement. Historically, I-Link has suffered substantial operating deficits and has required substantial infusions of working capital on an on-going basis. In early 2001, having been notified of its then majority stockholder's unwillingness to commit more funds to the Company, I-Link commenced efforts to seek alternative financing. Soon thereafter, I-Link commenced negotiations with Counsel Corporation in contemplation of Counsel Corporation making an investment in the Company. Counsel Corporation is a publicly traded business development
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company engaged primarily in the ownership and development of companies providing services and products in the United States and Canada. In February 2000, Counsel Corporation formed Counsel Communications LLC, a Delaware limited liability company and wholly owned subsidiary of Counsel Corporation, to focus on acquiring, consolidating and operating Internet telephony and other telecommunications-related businesses. (Counsel Communications LLC subsequently changed its name to Counsel Springwell Communications LLC, but reverted to its original name at the beginning of 2003 and is referred to below as Counsel Communications.)
On March 1, 2001, Counsel Corporation through Counsel Communications acquired an interest in I-Link in excess of 65% from the Company's then majority stockholder for $5,000,000. I-Link entered into a Senior Convertible Loan and Security Agreement (Senior Loan Agreement) with Counsel Communications under the terms and provisions of which agreement Counsel Communications was required to make periodic loans to I-Link in an aggregate principal amount not to exceed $10,000,000 (this agreement was amended in May 2001 to increase the aggregate principal amount to $12,000,000). During 2001, the full $12,000,000 was loaned to I-Link pursuant to this agreement and was utilized by it for working capital purposes.
On June 6, 2001, I-Link and Counsel Corporation entered into a Loan and Security Agreement (Security Agreement) under the terms of which agreement Counsel Corporation agreed to advance up to $10,000,000 to I-Link. In connection with the Security Agreement, I-Link executed a note in favor of Counsel Corporation due and payable June 6, 2002 and secured the note with all of I-Link's assets. Outstanding balances (including any accrued and unpaid interest) under the loan carried interest at 10% per annum which interest was payable quarterly in arrears on the last business day of each quarter. However, at its sole election, Counsel Corporation could allow interest on the loan to accrue and to become payable at the end of the term. The full amount available under the Security Agreement was advanced to I-Link during 2001. Under the terms of an April 15, 2001 letter, Counsel Corporation committed to I-Link to fund, through long-term inter-company advances or equity contributions, all capital investment working capital or other operational cash requirements of I-Link to continue as a going concern through April 15, 2002, and Counsel Communications delivered a similar letter dated April 3, 2002 committing to provide such funds as might be required in order for I-Link to continue as a going concern through April 15, 2003 (Keep Well Letters). As of the date of this Proxy Statement, this period has been extended through April 15, 2004. Counsel Communications, Counsel Corporation and I-Link agreed that the conditions and terms of repayment of amounts advanced pursuant to the Keep Well Letters would be similar to those contained in the Security Agreement. Accordingly, on June 27, 2002, I-Link and Counsel Corporation amended the Security Agreement, effective October 5, 2002, to increase the indebtedness represented thereby to $24,306,865.
Debt Restructuring Agreement. Under the terms of the Debt Restructuring Agreement by and among I-Link, Counsel Corporation and Counsel Communications dated July 25, 2002 (Original Agreement), $25.9 million of indebtedness that was due on June 6, 2002 would have been exchanged for shares of common stock of I-Link at a price of $0.18864 per share, the average closing transaction price for the month of May 2002. Interest on the $25.9 million would have ceased to accrue after July 12, 2002. The balance of the indebtedness, $13.4 million, was owed under the Senior Loan Agreement between Counsel Communications and I-Link and would have continued to be convertible, at the option of Counsel Communications, into shares of common stock of I-Link pursuant to the existing terms of that convertible indebtedness. The conversion price was set at $0.56 per share, but, as a result of the issuance of the shares of common stock in exchange for the $25.9 million of I-Link indebtedness, the conversion price would have been adjusted to $0.39221.
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The Original Agreement also provided that I-Link's guarantee of indebtedness in the amount of $12.5 million owed by WorldxChange to Counsel Communications would be cancelled. In addition, Counsel Communications agreed to surrender for cancellation by I-Link, warrants to purchase 15,000,000 shares of common stock of I-Link which were issued in connection with the loan by Counsel Communications to WorldxChange. I-Link would also have transferred to Counsel Communications all the outstanding shares of capital stock of WorldxChange. Finally, Counsel Communications also agreed to pay I-Link $1.0 million for expenses incurred by I-Link in connection with the acquisition of WorldxChange.
Under the terms of the Original Agreement, Counsel Communications also agreed to continue to provide I-Link with funding in the amount of $2.3 million through December 31, 2002 to fund I-Link's operating cash needs. Such funding would have constituted additional purchases of I-Link's common stock at a purchase price of $0.18864 per share. Counsel Communications also agreed to pay I-Link's expenses incurred in connection with this transaction. In addition, Counsel Corporation's and Counsel Communication's current commitment under the Keep Well Letters to fund all capital investment, working capital or other operational cash requirements of I-Link would have been extended from April 15, 2003 to December 31, 2003. Under the terms of the Original Agreement, such funding in 2003 would have constituted purchases of additional shares of I-Link's common stock at a purchase price equal to the average closing transaction price for a share of I-Link's common stock for the immediately preceding month.
Amended and Restated Debt Restructuring Agreement. I-Link's Board of Directors subsequently determined that the Original Agreement was not in the best interests of the stockholders. As a result, the parties entered into an Amended and Restated Debt Restructuring Agreement dated October 15, 2002 (Amended Agreement), which is attached in its entirety as Appendix B to this Proxy Statement. The issuance of I-Link's common stock pursuant to the Amended Agreement will result in a weighted average conversion price adjustment pursuant to the provisions of the Senior Loan Agreement. The issuance of shares under the Amended Debt Restructuring Agreement would also cause a reset to the conversion price of the convertible promissory note ($14,987,172 as of October 9, 2003) referred to above, from $0.39 to approximately $0.31 which would result in an additional 10,325,000 shares of common stock being issued, which shares have also been excluded.
The Amended Agreement includes the following terms:
- •
- The principal amount of $24,306,866 outstanding under the Security Agreement, together with accrued and unpaid interest, and any additional amounts advanced by Counsel Communications to I-Link since July 25, 2002 under the Keep Well Letters, together with interest accrued on such amounts at a rate of 10% per annum, will be exchanged for common stock of the Company at a price of $0.18864 per share (Effective Price);
- •
- Amounts advanced by Counsel Communications to I-Link under the Keep Well Letters from July 25 to December 31, 2002 will constitute additional purchases of I-Link's common stock at the Effective Price, and such funding in 2003 would constitute purchases of additional shares of I-Link's common stock at a purchase price equal to the average closing price for a share of I-Link's common stock for the twenty (20) trading days preceding the funding; provided that in the event that the Board of Directors determines to acquire the assets or equity interests of any other entity, I-Link and Counsel Communications agree that any acquisition cost related to such acquisition will be financed, at the option of Counsel Communications, either by way of equity from Counsel Communications constituting a purchase of additional shares of I-Link's common stock for a purchase price per share equal to the average closing transaction price of a share of common stock on the twenty (20) trading days preceding the funding or alternatively a purchase money loan arrangement similar in form and substance to the Security Agreement;
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- •
- Counsel Communications will advance to I-Link all amounts paid or payable by I-Link to its stockholders that exercise their dissenters' rights in connection with the transactions subject to the debt restructuring transactionand the amount for the annual premium to renew the existing directors and officers insurance coverage through November 2003.
- •
- Counsel Communications further agreed to reimburse I-Link for all costs, fees and expenses in connection with the Amended Agreement, whether incurred and yet to be incurred, including the Special Committee's costs to negotiate the Amended Agreement and costs related to obtaining any related stockholder approval. The costs, fees and expenses to be so reimbursed to I-Link will not be treated as advances, loans or stock purchases; nor will such amounts be subject to conversion into I-Link's common stock.
I-Link agreed to solicit the approval of its stockholders for Proposal 3 and for a proposal to increase the authorized capital of I-Link. I-Link also agreed to increase its authorized capital to make available shares of common stock into which debt owed to Counsel Corporation and its affiliates could be converted into stock pursuant to the Amended and Restated Debt Restructuring Agreement. Since Proposal 4 has the effect of increasing the number of authorized but unissued shares of common stock, Counsel Communications has agreed to waive the requirement that I-Link solicit stockholder approval of an increase in authorized capital (common stock).
I-Link's Special Committee, consisting of two independent directors, negotiated and approved the Amended Agreement on behalf of I-Link, recommended its adoption and approval to the I-Link Board of Directors and has also recommended that it be approved by the stockholders of I-Link. The Special Committee retained a financial advisor, who advised the Special Committee that the Amended Agreement was fair, from a financial point of view, to the stockholders of I-Link, other than Counsel Corporation and its affiliates. The Board of Directors of I-Link unanimously approved and recommended the Amended Agreement and also unanimously approved and recommended an amendment to the Articles of Incorporation of I-Link to delete Article VI.
If the debt restructuring transaction is consummated, Counsel Communications will own 88% (based on advances through October 9, 2003) of the voting equity securities of I-Link. If Counsel Communications owned more than 80% of each class of I-Link's equity securities and if this agreement is approved, it could, under Section 607.1104 of the Florida Act, merge I-Link into Counsel Communications without the approval of stockholders other than Counsel Communications. However, under the terms of the Amended Agreement, Counsel Communications has agreed not take any such action at any time prior to June 30, 2003.
Dissenters' Rights. With respect to the approval of an amendment to I-Link's Articles of Incorporation to delete Article VI as described in this Proposal, the I-Link stockholders are entitled to assert their dissenters' rights and obtain payment in cash for their shares under Sections 607.1302 and 607.1320 (Dissenters' Rights Provisions) of the Florida Business Corporation Act (Florida Act).
If you wish to dissent from the proposal to delete Article VI of I-Link's Articles of Incorporation and you properly perfect your dissenters' rights, you will be entitled to payment of the fair value of some or all of your shares of common stock or preferred stock, as elected by you, in accordance with Sections 607.1320(5)-(10) of the Florida Act if such proposal is approved. In order to perfect your dissenters' rights, you must fully comply with the statutory procedures of the Dissenters' Rights Provisions summarized below, the full text of which is set forth as Appendix C. I-Link urges you to read those sections in their entirety and to consult with your legal advisor. To exercise your dissenters' rights, you must file with I-Link at its headquarters a written notice of your election to dissent prior to the Annual Meeting and in any event within 20 days after I-Link gives written notice of its intent to engage in a transaction triggering the dissenters' rights as set forth in the Florida Act. A proxy or vote against the proposed action does not constitute a notice of intent to demand payment. You will forfeit your dissenters' rights if you do not file your election to dissent within the 20 day period or if you vote
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to approve the amendment to delete Article VI. Once a notice of election to dissent is filed with I-Link, you will be entitled to payment of the fair value of the shares covered by your election, in accordance with the discussion below, and you will not be entitled to vote or exercise any other rights of a stockholder in respect of the shares covered by such election.
Your election to dissent must state: (a) your name and address; (b) the number, classes and series of shares as to which you dissent; and (c) your demand for payment of the fair value of your shares.
If you file an election to dissent: (a) you must deposit the certificate(s) representing your shares with I-Link when you file your election; (b) you will be entitled only to payment pursuant to the procedure set forth in the Dissenters' Rights Provisions; and (c) you will not be entitled to vote or exercise any other rights of a stockholder of I-Link.
You may withdraw your notice of election at any time before I-Link makes an offer to purchase your shares, as described below, and only with I-Link's consent if you elect to withdraw after I-Link makes such offer. If you withdraw your notice of election, you will lose your right to pursue dissenters' rights, and you will again have the rights you had prior to the filing of your notice of election. Further, in the event I-Link for any reason does not proceed with the amendment to delete Article VI, your right to receive fair value for your shares ceases and your status as a stockholder of I-Link will be restored.
If you elect to exercise the dissenters' rights described above in this section: (a) within ten days after the period in which you may file your notice of election to dissent expires, I-Link will make a written offer to you to pay for your shares at a specified price that it deems to be the fair value of those shares; and (b) I-Link will deliver to you with its offer (i) a balance sheet as of the latest available date, and (ii) a profit and loss statement for the 12-month period ended on the date of the balance sheet that I-Link provides you.
After I-Link makes an offer to you, you will have 30 days to accept it. If you accept it within that 30-day period, I-Link will pay you for your shares within 90 days of the later to occur of (i) the date of its offer and (ii) the date of the approval of the proposal to delete Article VI of I-Link's Articles of Incorporation. When we pay you the agreed value of your shares of I-Link's stock, you will cease to have any further interest in your shares. If we do not purchase your shares or you do not accept our offer within 30 days from the day I-Link makes it, then you will have 60 days from the date of the approval of the proposal to delete Article VI of I-Link's Articles of Incorporation to demand that the I-Link file an action in any court of competent jurisdiction to determine the fair value of your shares. I-Link will have 30 days from the day it receives your demand to initiate the action. I-Link also may commence the action on its own initiative at any time within the 60-day period described above. If I-Link does not initiate the action within the above-described period, you may do so in its name.
Any dissenters' rights payments required to be made by I-Link will be funded by Counsel.
Parent-Subsidiary Merger under the Florida Laws. Under the provisions of Section 607.1104 of the Florida Act, a parent corporation owning at least 80 percent of the outstanding shares of each class of a subsidiary corporation may merge the subsidiary into itself, may merge itself into the subsidiary, or may merge the subsidiary into and with another subsidiary in which the parent corporation owns at least 80 percent of the outstanding shares of each class of the subsidiary without the approval of the stockholders of the parent or subsidiary. In a merger of a parent corporation into its subsidiary corporation, the approval of the stockholders of the parent corporation is required if the articles of incorporation of the surviving corporation will differ from the articles of incorporation of the parent corporation before the merger,and the required vote shall be the greater of the vote required to approve the merger and the vote required to adopt each change to the articles of incorporation as if each change had been presented as an amendment to the articles of incorporation of the parent corporation.
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The Florida Act further provides that the board of directors of the parent corporation must adopt a plan of merger that contains information relating to the proposed merger, including:
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- the names of the entities involved;
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- the manner and basis of converting the shares of the subsidiary or parent into shares, obligations, or other securities of the parent, and the manner and basis of converting rights to acquire shares of each corporation into rights to acquire shares, obligations, and other securities of the surviving or any other corporation or, in whole or in part, into cash or other property;
- •
- in the event of the merger between the parent corporation and a subsidiary corporation, the parent is not the surviving corporation, a provision for the pro rata issuance of shares of the subsidiary to the holders of the shares of the parent corporation upon surrender of any certificates of the parent corporation's securities; and
- •
- A clear and concise statement that shareholders of the subsidiary who, except for the applicability of this section, would be entitled to vote and who dissent from the merger may be entitled, if they comply with the provisions of the Florida Act regarding the rights of dissenting stockholders, to be paid the fair value of their shares.
The parent may not deliver articles of merger to the Florida Department of State for filing until at least 30 days after the date it mailed a copy of the plan of merger to each shareholder of the subsidiary who did not waive the mailing requirement, or, if earlier, upon the waiver thereof by the holders of all of the outstanding shares of the subsidiary. Articles of merger under this section may not contain amendments to the articles of incorporation of the parent corporation.
Vote Required for Approval
All shares of I-Link's common stock and the Series N preferred stock, voting on an as-converted basis and voting as a single class, will be entitled to vote on Proposal 3. The affirmative vote of at least 67% of the outstanding shares of common stock and the Series N preferred stock on an as-converted basis is required for approval of an amendment of the Articles of Incorporation deleting Article VI. The Board of Directors unanimously recommends a voteFOR deleting Article VI of the Company's Articles of Incorporation.
The proposed amendment to I-Link's Articles of Incorporation deleting Article VI will be filed with the Department of State of the State of Florida if Proposal 3 is approved. The proposed amendment will take effect when it is filed with the Department of State of the State of Florida. We propose to file the amendment immediately in the event Proposal 3 is approved, and it will be effective as of the vote with respect to Proposal 3.
PROPOSAL 4
TO APPROVE A 1-FOR-20 REVERSE SPLIT OF I-LINK'S COMMON STOCK.
On December 6, 2002, the Board of Directors approved a 1-for-20 reverse split of I-Link's common stock (Reverse Stock Split). The Reverse Stock Split will not have a significant affect on any stockholder's proportionate equity interest in I-Link. The Reverse Stock Split will not have any material impact on the aggregate capital represented by the shares of common stock for financial statement purposes, nor will adoption of the Reverse Stock Split reduce the number of shares of common stock authorized for issuance. However, it will change the par value of the common stock, and it will reduce the number of shares of common stock presently issued and outstanding. The proposed Reverse Stock Split will also have the effect of increasing the number of I-Link's common stock shares available for issuance. The rights and privileges of holders of shares of common stock will remain the same after the Reverse Stock Split.
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The decrease in the number of shares of common stock outstanding as a consequence of the Reverse Stock Split is expected to increase the per share price of the common stock, which may encourage greater interest in the common stock and possibly promote greater liquidity for I-Link's stockholders. However, the increase in the per share price of the common stock as a consequence of the Reverse Stock Split may be proportionately less than the decrease in the number of shares outstanding. In addition, any increased liquidity due to any increased per share price could be partially or entirely offset by the reduced number of shares outstanding after the Reverse Stock Split. There can be no assurance that the favorable effects described above will occur, or that any increase in the per share price of the common stock resulting from the Reverse Stock Split will be maintained for any period of time.
On the Record Date, the closing bid price for I-Link's common stock shares was $0.14. The market price of our common stock will also be based on our performance and other factors, some of which are unrelated to the number of shares outstanding. If the Reverse Stock Split is effected and the market price of I-Link's common stock changes, the percentage change as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of the Reverse Stock Split. In addition, the reduced number of shares that would be outstanding after the Reverse Stock Split will likely significantly reduce the trading volume of I-Link's common stock and could otherwise adversely affect the liquidity of I-Link's common stock.
The management of I-Link does not currently intend to engage in any future transactions or business combinations which would qualify I-Link for de-registration of the common stock from the reporting and other requirements of federal securities laws.
If the Reverse Stock Split is approved by the stockholders, I-Link will then file Articles of Amendment to I-Link's Articles of Incorporation (Articles of Amendment) with the Secretary of State of the State of Florida. The Reverse Stock Split will become effective at the time of the filing of the Articles of Amendment (Effective Date). Appendix D is attached at the end of this document and contains the proposed language for Article III, Paragraph (A). We reserve the right to modify the form of the proposed amendment to the extent that it may be necessary to do so in order to comply with applicable law. The Reverse Stock Split will become effective at the time specified in the Articles of Amendment, which will most likely be some time shortly after the filing of the Articles of Amendment. Commencing on the Effective Date, each currently outstanding stock certificate will be deemed for all corporate purposes to evidence ownership of 1/20th of a share resulting from the Reverse Stock Split. Currently outstanding certificates do not have to be surrendered in exchange for new certificates in connection with the Reverse Stock Split. Rather, new stock certificates reflecting the number of shares resulting from the Reverse Stock Split will be issued as currently outstanding certificates are transferred. However, I-Link will provide stockholders with instructions as to how to exchange their certificates and encourage them to do so. I-Link will obtain a new CUSIP number for I-Link's shares of common stock.
Fractional Shares. No scrip or fractional share certificates will be issued in connection with the Reverse Stock Split. Stockholders who otherwise would be entitled to receive fractional shares will be entitled, upon surrender of certificate(s) representing these shares, to a number of shares of post-split shares rounded up to the nearest whole number. The ownership of a fractional interest will not give the stockholder any voting, dividend or other rights except to have his or her fractional interest rounded up to the nearest whole number when the post-split shares are issued.
Holders of options and warrants to purchase shares of common stock, who upon exercise of their options or warrants would otherwise be entitled to receive fractional shares, because they hold options which upon exercise would result in a number of shares of common stock not evenly divisible by the Reverse Stock Split ratio chosen by the Board of Directors, will receive a number of shares of common stock rounded up to the nearest whole number.
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Par Value Adjustment. In connection with the Reverse Stock Split, the Board of Directors will adjust the par value of I-Link's common stock from $0.007 to $0.01 per share effective as of the date of the effectiveness of the Reverse Split Stock. Under Florida Act, the Board of Directors may effect this change to I-Link's Articles of Incorporation without stockholder approval. However, I-Link Board of directors is seeking stockholder approval of this amendment to its Articles of Incorporation. Therefore, stockholder approval of the Reverse Stock Split (Proposal 4 of this Proxy Statement) will have the effect of approving issuance of the proposed adjustment in the common stock par value from $0.007 to $0.01 per share.
As of the Record Date, I-Link had approximately 800 stockholders of record and believes that the total number of beneficial holders of the common stock of I-Link to be approximately 11,700, based on information received from the transfer agent and those brokerage firms who hold I-Link's securities in custodial or "street" name. After the Reverse Stock Split, I-Link estimates that, based on the stockholdings as of October 9, 2003, I-Link will continue to have approximately the same number of stockholders.
There can be no assurance that the market price of the I-Link's common stock after the Reverse Stock Split will be a multiple represented by the reverse stock split ratio times the market price before the Reverse Stock Split.
Options And Other Warrants. I-Link has outstanding various options and other warrants to acquire up to an aggregate of approximately 8,700,000 shares of common stock at various exercise prices as of October 9, 2003. Pursuant to the adjustment provisions set forth in the governing documents the amount of common stock issuable pursuant to these options and warrants will be reduced by dividing the total number by the reverse stock split ratio, and the exercise prices will be increased by a factor of the reverse stock split ratio.
Federal Income Tax Consequences. The federal income tax consequences of the Reverse Stock Split will be as set forth below. The following information is based upon existing law which is subject to change by legislation, administrative action and judicial decision and is therefore necessarily general in nature. The following disclosure does not represent tax advice. Therefore, stockholders are advised to consult with their own tax advisors for more detailed information relating to their individual tax circumstances.
The Reverse Stock Split will be a tax-free recapitalization for I-Link and I-Link's stockholders to the extent that currently outstanding shares of common stock are exchanged for other shares of common stock after the Reverse Stock Split.
The new shares in the hands of a stockholder will have an aggregate basis for computing gain or loss equal to the aggregate basis of shares of stock held by that stockholder immediately prior to the Reverse Stock Split. The stockholders' basis in the new stock is equal to the basis in the stock exchanged less any cash received plus gain recognized, if any.
Reasons For and Effects of the 1-For-20 Reverse Stock Split
Presently, I-Link's Articles of Incorporation authorize the issuance of up to 300,000,000 shares of common stock, of which 116,669,547 shares were issued and outstanding at the close of business on the Record Date. The authorized number of shares of preferred stock is and will remain 10,000,000 shares.
I-Link will require additional authorized shares of its common stock for issuance in the future based upon various outstanding option and purchase plans, warrants and other commitments by I-Link as issuances under these various plans, the Debt Restructuring Agreement and the future capital needs of I-Link may exceed the number of currently authorized, but unissued shares of I-Link. As a result of the decrease in the number of outstanding shares of I-Link's common stock resulting from the Reverse Stock Split, the number of authorized but unissued shares of common stock will be substantially
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increased. Based upon the number of shares outstanding on the Record Date, assuming that no outstanding options are exercised and further assuming that the Debt Restructuring Agreement is consummated and that that no other convertible debt is converted, there would be approximately 14,400,000 shares of common stock outstanding, and approximately 285,600,000 shares of common stock authorized but unissued, after the Reverse Stock Split.
Vote Required for Approval
All shares of I-Link's common stock and the Series N preferred stock, voting on an as-converted basis and voting as a single class, will be entitled to vote on Proposal 4. If Proposal 3 is approved, the approval of the Reverse Stock Split requires the affirmative vote of at least the majority of the issued and outstanding common stock and the Series N preferred stock on as as-converted basis. If Proposal 3 is not approved, the approval of the Reverse Stock Split must be approved by (a) a vote of the holders of at least a majority of I-Link's issued and outstanding common stock including the Series N preferred stock on an as-converted basis held by stockholders other than officers, directors and those persons who hold five percent or more of I-Link's outstanding common stock including the Series N preferred stock on an as-converted basis, and (b) a vote of a majority of shares issued and outstanding of I-Link common stock including the Series N preferred stock on an as-converted basis held by I-Link's officers, directors, and those persons who hold five percent or more of I-Link's outstanding common stock including the Series N preferred stock on an as-converted basis. Therefore, since a majority of all outstanding voting shares is required, any shares that are not voted, including shares represented by a proxy that is marked "abstain," will count "against" Proposal 4. The Board of Directors unanimously recommends a voteFOR the approval of the reverse split of I-Link's common stock.
PROPOSAL 5
TO APPROVE THE 2003 STOCK OPTION AND APPRECIATION RIGHTS PLAN.
On February 12, 2003, the Board of Directors approved the 2003 Stock Option and Appreciation Rights Plan (2003 Plan) and recommended it for stockholder approval at the Annual Meeting. The purpose of the 2003 Plan is to induce officers, directors, employees and consultants of I-Link or any of its subsidiaries who are in positions to contribute materially to I-Link's growth and prosperity to remain with I-Link by offering these individuals incentives and rewards in recognition of their contributions to I-Link. The 2003 Plan applies to all grants of stock options and stock appreciation rights (SARs) granted on or after the date the 2003 Plan is approved or adopted by I-Link's directors unless otherwise indicated.
Under the 2003 Plan, I-Link may issue options which will result in the issuance of up to an aggregate of forty million (40,000,000) shares of I-Link common stock on a pre-split basis (see the Proposal 4 discussion in this Proxy Statement). The 2003 Plan provides for options that qualify as incentive stock options ("Incentive Options") under Section 422 of the Code, as well as the issuance of non-qualified options ("Non-Qualified Options"). The shares issued by I-Link under the 2003 Plan may be either treasury shares or authorized but unissued shares as I-Link's board of directors may determine from time to time.
Pursuant to the terms of the 2003 Plan, I-Link may grant Non-Qualified Options and SARs only to officers, directors, employees and consultants of I-Link or any of I-Link's subsidiaries as selected by the board of directors or the Compensation Committee. The 2003 Plan also provides that the Incentive Options shall be available only to officers or employees of I-Link or any of I-Link's subsidiaries as selected by the board of directors or Compensation Committee.
Options granted under the 2003 Plan must be evidenced by a stock option agreement in a form consistent with the provisions of the 2003 Plan. In the event that employment or service provided by a
35
Plan participant is terminated for cause, any vested or unvested options, rights to any options, or SARs of the 2003 Plan participant will terminate immediately regardless of whether the option is qualified or non-qualified. In the event a Plan participant is terminated for any reason other than for cause, death or disability, any non-qualified or qualified options, options rights or SARs held by the 2003 Plan participant may be exercised for three months after termination or at any time prior to the expiration of the option, whichever is shorter, but only to the extent vested on the termination date.
The price at which shares of common stock covered by the option can be purchased is determined by I-Link's Compensation Committee or Board of Directors; however, in all instances the exercise price is never less than the fair market value of I-Link's common stock on the date the option is granted. To the extent that an Incentive Option or Non-Qualified Option is not exercised within the period in which it may be exercised in accordance with the terms and provisions of the 2003 Plan described above, the Incentive Option or Non-Qualified Option will expire as to the then unexercised portion. To exercise an option, the 2003 Plan participant must tender an amount equal to the total option exercise price of the underlying shares and provide written notice of the exercise to I-Link. The right to purchase shares is cumulative so that once the right to purchase any shares has vested, those shares or any portion of those shares may be purchased at any time thereafter until the expiration or termination of the Option. VOTE REQUIRED FOR APPROVALA copy of the 2003 Plan is attached to this Proxy Statement as Appendix E.
Vote Required for Approval
All shares of I-Link's common stock includingand the Series N preferred stock, voting on an as-converted basis and voting as a single class will be entitled to vote. The affirmative vote ofon Proposal 5. Proposal 5 must be approved by a majority of the votes cast is requiredin order to approve Proposal 4.be effective. Therefore, any shares that are not voted, including shares represented by a proxy which is marked "abstain," will not count either "for" or
"against" Proposal 4.
PROPOSAL 5
RATIFY ISSUANCES BY I-LINK OF ITS COMMON STOCK SHARES IN CONNECTION WITH THE
MARCH 1, 2001 SENIOR CONVERTIBLE LOAN AND SECURITY AGREEMENT BETWEEN COUNSEL
COMMUNICATIONS LLC AND I-LINK, AND WITH THE APRIL 17, 2001 AGREEMENT AND PLAN OF
MERGER BETWEEN WEBTOTEL, INC. AND I-LINK.
(See "Certain Relationships and Related Transactions" for a more detailed
descriptions of the terms and provisions of the below referenced transactions).
ISSUANCE UNDER THE SENIOR CONVERTIBLE LOAN AND SECURITY AGREEMENT
On March 1, 2001, I-Link entered into a Senior Convertible Loan and Security
Agreement (Loan Agreement) with Counsel LLC, a wholly-owned subsidiary of
Counsel Corporation (U.S.), also a Delaware corporation (collectively, Counsel).
Under the terms of the Loan Agreement, Counsel agreed to make periodic loans to
I-Link in the aggregate principal amount not to exceed $10,000,000 (subsequently
increased to $12,000,000 on May 8, 2001). In connection with the Loan Agreement,
I-Link executed a 9% loan note payable to Counsel on the maturity date in the
principal amount of $10,000,000 (Loan Note). The Loan Note was structured as a
three-year note convertible, at the option of Counsel, into the shares of common
stock of I-Link at a conversion price of $0.56 per common share (Conversion
Price). The Conversion Price represented 105% of the average closing transaction
price of I-Link's common shares over the consecutive five-day trading period
ending February 26, 2001, the date on which I-Link and Counsel executed a
binding term sheet.
In addition, I-Link also agreed: (1) to grant Counsel a security interest in
all of I-Link's assets (as well as the assets of its subsidiaries) owned at the
time of or acquired subsequent to the execution of the Loan Agreement; (2) to
appoint two designees of Counsel to the board of directors of I-Link and to
solicit the proxies of I-Link's shareholders to elect three additional nominees
designated by Counsel; and (3) to commit to various corporate governance
restrictions including as to the sale and disposition of I-Link's assets,
mergers and acquisitions, incurring funded indebtedness.
31
Based on the Conversion Price, the potential issuance underlying the Loan
Agreement would be approximately 17,857,142 shares of I-Link's common stock. No
shares of I-Link's common stock have been issued in connection with the Loan
Agreement as of the date of this proxy statement.
ISSUANCE UNDER THE AGREEMENT AND PLAN OF MERGER
On April 17, 2001 I-Link and its wholly-owned subsidiary, I-Link Acquisition
Corporation (Merger Sub) entered into an Agreement and Plan of Merger (Merger
Agreement) with WebToTel, Inc., a Delaware corporation (WebToTel), Counsel, and
certain other shareholders. Under the terms of the Merger Agreement, the Merger
Sub agreed to be merged into WebToTel and to cease its independent existence.
The consideration payable by I-Link to WebToTel's shareholders was calculated
based on a $0.56 per share valuation of I-Link's common stock delivered to
WebToTel. This calculation resulted in I-Link's issuance to WebToTel's
shareholders an aggregate of 17,454,333 shares of I-Link's common stock
following the merger. On the closing date of the Nexbell transaction, I-Link
issued an aggregate total of 17,454,333 shares of I-Link common stock.
The board of directors seeks ratification of above referenced stock
issuances in response to actions taken by The Nasdaq Stock Market (Nasdaq) to
delist I-Link's common stock because of I-Link's alleged failure to comply with
the National Association of Securities Dealers, Inc.'s (NASD) corporate
governance rules. The Nasdaq Listing Qualifications Panel (Panel) raised a
concern that I-Link may have violated the shareholder approval requirement as it
is set forth in the NASD marketplace rules. Specifically, the shareholder
approval requirement states that an issuer must seek approval of its
stockholders when, in connection with the acquisition of the stock or assets of
another company, it issues securities in excess of 20% of its common stock
outstanding prior to the issuance. Having aggregated I-Link's stock issuance in
connection with the Nexbell acquisition and I-Link's potential issuance in
connection with the Loan Agreement with Counsel, the Panel noted that I-Link
should have sought approval of its stockholders prior to those stock issuances
and, thus, may have violated the shareholder approval requirement. However, the
management and the NASD staff have reached a mutually acceptable agreement under
which I-Link's management agreed to offer these issuances for its stockholders'
consideration and ratification. In the event that I-Link's stockholders do not
ratify the above referenced stock issuances, I-Link may be deemed in violation
of the NASD's marketplace rules, which, in turn, may result in the immediate
de-listing of I-Link's securities from Nasdaq.
The Panel's July 17, 2001 determination to keep I-Link's securities listed
on the Nasdaq SmallCap Market was contingent upon Counsel's commitment to
(i) refrain from converting any shares issuable to Counsel under the Loan
Agreement pending completion of the shareholder vote on Proposal 5 (21,983,521
shares issuable to Counsel upon conversion of the Loan), and (ii) abstain from
voting the 17,434,489 shares it received in connection with the NexBell
transaction, a total of 39,418,010 shares. As of the date of this Proxy
Statement, Counsel holds an aggregate total of 101,384,067 shares of I-Link's
securities.
Counsel indicated that it intends to vote 61,966,057 shares "FOR"
Proposal 5.
The Nexbell financial statements as of December 31, 2000 and the unaudited
pro forma combined condensed financial statements at March 31, 2001 are included
in this Proxy Statement as Appendix D.
VOTE REQUIRED FOR APPROVAL
All shares of I-Link's common stock including the Series N preferred stock
voting on an as-converted basis and voting as a single class, will be entitled
to vote. The affirmative vote of a majority of the votes cast is required to
approve Proposal 5. Therefore, any shares that are not voted, including shares
represented by a proxy which is marked "abstain," will not count either "for" or "against" Proposal 5. 32
OTHER PROPOSED ACTION
The board of directors unanimously recommends a vote
The Board of Directors does not intend to bring any other matters before the annual meeting,Annual Meeting, nor does the board of directors know of any matters that other persons intend to bring before the annual meeting.Annual Meeting. If, however, other matters not mentioned in this proxy statement properly come before the annual meeting,Annual Meeting, the persons named in the accompanying form of proxy will vote thereon in accordance with the recommendation of the boardBoard of directors.Directors of the Company.
You should be aware that I-Link's By-Laws provide that no proposals or nominations of directors by stockholders shall be presented for vote at an annual meeting of stockholders unless notice complying with the requirements in the By-Laws is provided to the board of directors or I-Link's Secretary no later than the close of business on the fifth day following the day that notice of the annual meeting is first given to stockholders in its discretion.
33
STOCKHOLDER PROPOSALS AND SUBMISSIONS
If you wish to present a proposal for inclusion in the proxy materials to be solicited by I-Link's board of directors with respect to the next annual meeting of stockholders, such proposal must be presented to I-Link's management prior to April 30, 2002.
2004.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY USING THE ENVELOPE PROVIDED. YOUR VOTE IS IMPORTANT. IF YOU ARE A STOCKHOLDER OF RECORD AND ATTEND THE MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY AT ANY TIME PRIOR TO THE VOTE.
36
INFORMATION INCORPORATED BY REFERENCE INTO THIS PROXY STATEMENT
A copy of the Annual Report for the fiscal year ended December 31, 2002, containing the financial statements and notes to financial statements, together with quantitative and qualitative disclosures about market risk and management's discussion and analysis of financial condition and results of operations for the year ended December 31, 2002 as well as copies of the Quarterly Reports for the quarterly periods ended March 31 and June 30, 2003, respectively, containing the financial statements and notes to financial statements are included with this Proxy Statement.
| I-LINK INCORPORATED | ||
| Stephen Weintraub Secretary |
37
APPENDIX A
I-LINK INCORPORATED
I-Link Incorporated
AUDIT COMMITTEE CHARTER
AS AMENDED AND APPROVED ON JULY 10, 2001
As Amended February 12, 2003
I. RESPONSIBILITY
The I-Link Incorporated ("I-Link") Audit Committee ("Committee") was established to assist the Board of Directors in carrying out its oversight responsibilities that relate to I-Link's accounting and financial reporting processes, audits of I-Link's financial statements, internal control,controls, and compliance with laws regulations and ethics. This policy reaffirms that the Committee's duties are oversight in nature and that the primary responsibility for financial reporting, internal control, and compliance with laws, regulation, and ethics standards rests with I-Link's executive management and that theI-Link's external auditors are responsible for auditing I-Link's financial statements. Moreover,The foregoing notwithstanding, the Committee, in its capacity as the audit committee of the Board of Directors, has direct responsibility for the appointment, compensation and oversight of the work of any registered public accounting firm employed by I-Link (including resolution of disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. The Committee does not provide any expert or special assurances as to I-Link's financial statements or any professional certification as to the external auditor's work.
The Committee shall havehas the power to conduct or authorize investigations into any matters within the Committee's scope of responsibilities.responsibilities and to establish procedures concerning the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters and confidential, anonymous employee submissions of concerns regarding questionable accounting or auditing matters. The Committee is empowered to retain independent counsel, accountants, or others to assist it in the conduct of any investigation. The President, the Chief Financial Officer or the Corporate Secretary of the CompanyI-Link shall provide, or arrange to provide, such other information, data and services as the Committee may request. The Committee shall conduct such interviews or discussions as it deems appropriate with personnel of the Company, an/I-Link, and/or others whose views would be considered helpful to the Committee.
The Committee's prior approval is required for all auditing services and non-audit services. However, in the event the aggregate amount of non-audit services constitutes 5% or less of the total revenues paid by I-Link to its external auditor during the fiscal year in which non-audit services are provided, if I-Link did not recognize that these services were non-audit services at the time of the engagement and the Committee is promptly notified of this fact by I-Link, if the Committee (or one or more members of the Committee who are also members of the board to whom approval authority has been delegated by the Committee) approves such non-audit services prior to their completion, the requirement for Committee pre-approval may be waived.
The Committee believes its policies and procedures should remain flexible in order to best react to changing conditions and that the following duties of the Committee are set forth as a guide with the understanding that the Committee may diverge from this guide as appropriate given the circumstances:
- A.
- Financial Reporting
- 1.
- Selection of Independent Public Accountants
Committee procedures shall include:
The Committee and the Board have the ultimate authority and responsibility to select, evaluate, where appropriate, replace the outside auditor. The independent accountants are ultimately accountable to the Audit Committee and the entire Board for such
1
- •
- Review and prior approval of all auditing services and non-audit services. (In the event the Committee approves an audit service within the scope of an auditor's engagement, that audit service shall be deemed to have been pre-approved.)
- •
- Assessments on the performance of the external auditors by appropriate management.
- Inquire - •
- Inquiring if the external auditors face any significant litigation or disciplinary actions by the
SECSecurities and Exchange Commission (the "Commission") or others.- Written - •
- Inquiring whether the chief executive officer or the audit partner of I-Link's external auditors was employed by a registered independent public accounting firm and participated in any capacity in I-Link's audit during the one-year period preceding the commencement of an audit of I-Link.
- •
- Receiving from the accountants, on a periodic basis, a formal written statement delineating all relationships between the accountants and I-Link consistent with Independence Standards Board Statement 1 ("ISB No. 1");
- •
- Obtaining written disclosure from the external auditors describing all relationships between the external auditors and I-Link that bear on independence and objectivity.
- Discussion - •
- Discussing auditor independence with
theits externalauditor regarding independenceauditors andrecommendrecommending that the Board of Directors take appropriate action regarding any independence issues.A-1- - •
- Discussing with I-Link's Chief Executive Officer and Chief Financial Officer certifications in I-Link's periodic reports concerning disclosures of significant control deficiencies and any fraud by management.
- •
- Auditor engagement letters and estimated fees.
- The - •
- Consideration of the report of the external auditor's latest peer review conducted pursuant to a professional quality control program.
- Management's - •
- Review of management's letter of representation and consideration of any significant operational or reporting issues that may affect the financial statements.
- - •
- Proposed
nonauditnon-audit services andconsiderconsideration of the possible effect that these services could have on the independence of the external auditors.- Facilitate - •
- Facilitating and
maintainmaintaining an open avenue of communication with I-Link's external auditors. - •
- Ensuring the Committee is informed in a timely manner by I-Link's independent auditor of (1) all critical accounting policies and practices; (2) discussion with I-Link's management of all alternative treatments of financial information within generally accepted accounting principles, the ramifications of the use thereof and the preferred the independent auditor's preferred treatment; and (3) other material written
accountant's review of the financial statements and controls of I-Link. On an annual basis, the Audit Committee should review and discuss with the accountants all significant relationships the accountants have with I-Link to determine the accountants' independence. The Committee shall review senior management's recommendation on the annual selection of the external auditors. The Committee shall submit its recommended appointment (or reappointment) or termination of external auditors to the Board of Directors for their approval.
The Committee's review shall include:
- Opinions
2
- 2.
Meet - Meeting with I-Link's general counsel, if any, and outside counsel when appropriate, to discuss legal matters that may have a significant impact on I-Link's financial statements.
- 3.
- Regarding I-Link's financial statements, the Committee will:
-- •
- Review I-Link's audited annual financial statements and independent auditors'
opinionsreports with respect to the statements, including the nature of any changes in accounting principles or their application.- - •
- Review I-Link's interim quarterly financial statements and independent auditors'
opinionsviews with respect to the statements, including the nature of any changes in accounting principles or their application.- - •
- Review significant accounting policies, policy decisions and changes, along with significant accounting, reporting or operational issues.
- Prior to the release of the each quarterly financial report to shareholders, review - •
- Review the financial statements to be issued with management and with the independent auditors to determine
thatwhether the independent auditors are satisfied with the disclosure and content of the financial statements to be presented to theshareholders. - Based on its reviewstockholders prior to the release of theinterim and annualeach quarterly financialstatements with management and the independent auditors, makereport to stockholders. - •
- Make a recommendation to the Board of Directors regarding the inclusion of interim and annual financial statements in I-Link's Commission filings based on its review of such financial statements
inwith management and thecompany's SEC filings. -independent auditors. - •
- Ensure that management maintains reliability and integrity of accounting policies and financial reporting and that management establishes and maintains processes to assure adequate systems of internal control.
- - •
- Disclose in
the company'sI-Link's annual proxy or information statement, the existence of the Committee andAuditthe Committee charter and the extent to which the Committee has satisfied its responsibilities during the prior year in compliance with its charter.- - •
- Disclose the Committee's approval of any non-audit services in I-Link's periodic reports filed with the Commission.
- •
- Review the management letter issued by the external auditors and management's response.
- - •
- Review fees paid for audit and consulting
services.services, respectively.
- 4.
- Annually review and examine those matters which relate to a financial review of
the Company's Investment Policies.I-Link's investment policies. - 5.
- Submit findings of importance, conclusions, recommendations, and items that require follow-up or action to the Board of Directors.
A-2 - 6.
- Annually review and update the Audit Committee Charter and submit the Charter to the full Board of Directors for approval.
- 7.
- Maintain minutes or the other records of meetings and activities of the Committee.
- B.
- Monitoring of Internal Controls
communications between the independent auditors and I-Link's management to include any management letter or schedule of audit adjustments.
The Committee is responsible for obtaining and understanding of I-Link's key financial reporting risk areas and internal control structure. The Committee monitors the internal control process by reviewing information provided in the internal reporting made by each I-Link employee,
3
- C.
- Compliance with Laws, Regulations, and Ethics
discussions with the chief financial and accounting officers and such other persons as the Committee deems appropriate, and discussions with and reports issued by external auditors.
- 1.
- Review I-Link's policies relating to compliance with laws, regulations, ethics, and conflict of interest.
- 2.
- Review significant cases of conflict of interest, misconduct, or fraud and the resolution of such cases.
- 3.
- Review I-Link's policies and processes for compliance with U.S. and foreign country export controls, laws and regulations.
- 4.
- Review I-Link's policies and processes for compliance with the Foreign Corrupt Practices Act and the USA Patriot Act.
- 5.
- Review compliance reports received from regulators and consider legal and regulatory matters that may have a material impact on the financial statements.
- 6.
Review external auditor's reports that relate to the monitoring of compliance with I-Link's policies on business ethics. 7. - Review policies and procedures covering officers' expense accounts and perquisites, including their use of corporate
assets,assets. - 7.
- Review the disclosure included in I-Link's periodic reports concerning whether at least one member of the Committee is a "financial expert" (as defined in Part II below) and,
considerif no member of theresults of any review of these areas by internal or external auditors.Committee is a "financial expert", why no such expert has been appointed to the Committee.
The Committee shall review reports and other information to gain reasonable assurance that I-Link is in compliance with pertinent laws and regulations, is conducting its affairs ethically, and is maintaining effective controls against conflict of interest and fraud.
Committee procedures shall include:
II. OVERSIGHT OF EXTERNAL AUDIT FUNCTIONS
The Committee shall schedule meetings as necessary to receive and discuss reports from staff, other committees, and consultants. Particular emphasis will be given by the Committee to significant control deficiencies, and actions taken by management to correct them. The Committee may request through the Chief Financial Officer that the external auditors perform special studies, investigations, or other services in matters of interest or concern to the Committee.
The Committee's oversight of external audit coverage is covered under section I. A.I.A. above.
III. COMMITTEE MEMBERSHIP
The Committee shall be composed of threetwo or more Directors, noneeach of whom shall be officers or former officersindependent. To be considered independent, a Committee member may not (other than in his capacity as a member of the Company.Committee, the Board or another committee of the Board) accept any consulting, advisory or other compensatory fee from I-Link or be an affiliated person of I-Link or any of its subsidiaries. Each member shall comply with the requirements set forth in The Nasdaq Stock Market Marketplace Rules,promulgated by the Commission and any stock exchange on which shares of stock of I-Link are traded, and shall be free of any relationship that, in the opinion of the Board of Directors, would interfere with his or her exercise of independent judgment. All members of the Committee will have a general understanding of basic finance practices, and accounting practices A-3
policies,policies. The Committee members may enhance their familiarity with finance and at least one member must have accounting by participating in educational programs conducted by I-Link or related financial
management expertise.an outside consultant. The Chairman and other members of the Committee shall be appointed by the ChairmanBoard of the Board.Directors.
4
Vacancies occurring in the Committee may be filled by appointment of the Chairman of the Board, but no member of the Committee shall be removed except by vote of a majority of Directors present at any regular or special meeting of the Board.
The Secretary of the Committee shall be appointed by the Secretarymajority vote of the Company.Committee. The Secretary of the Committee shall prepare minutes of the meetings, maintain custody of copies of data furnished to and used by the Committee, and generally assist the Committee in connection with preparation of agendas, notices of meetings and otherwise.
IV. CONDUCT OF BUSINESS
All meetings require the presence of a majority of the members of the Committee to conduct business. Each Committee member shall have one vote. All actions or determinations by the Committee must be by majority vote of the members present. The Board of Directors shall have overall authority over all Committee actions.
V. COMPENSATION
The compensation of members of the Committee may be determined from time to time by resolution of the Board.Board of Directors. Members of the Committee shall be reimbursed for all reasonable expenses incurred in attending such meetings.
VI. TIME AND PLACE OF MEETINGS
Committee meetings shall be held quarterly or more frequently as necessary at an agreed upon location. The Committee may ask members of management or others to attend the meeting and to provide pertinent information as necessary. As part of its job to foster open communication, the Audit Committee should meet at least annual with management and the independent accountants separately to discuss any matters that the Audit Committee or each of these groups believe should be discussed privately. In addition, the Audit Committee or at least its Chairperson should meet with the independent accountants and management quarterly to review I-Link's financial statements consistent with the Audit Committee's duties and responsibilities set forth herein.
VII. PRESENTATION OF REPORTS TO THE BOARD OF DIRECTORS
The Committee shall make an annual presentation to the Board of Directors within three months after the receipt of the external auditor's opinion on I-Link's financial statement. The presentation shall provide an overview of the Committee's activities, findings of importance, conclusions, recommendations, and items that require follow-up or action by the Board. Presentations may be made at more frequent intervals if deemed necessary by the Committee or as requested by the Board of Directors.
A-4
5
APPENDIX B
[Execution Copy]
AMENDED AND RESTATED
DEBT RESTRUCTURING AGREEMENT
This Debt Restructuring Agreement is entered into this 15th day of October 2002 between I-Link Incorporated, a Florida corporation ("I-Link"), Counsel Corporation (US), a Delaware corporation ("Counsel"), and Counsel Springwell Communications LLC, a Delaware limited liability company formerly known as Counsel Communications LLC ("Counsel Springwell").
A. Counsel Springwell and I-Link entered into a Senior Convertible Loan and Security Agreement dated as of March 1, 2001 as amended (the "March 1st Loan Agreement"), pursuant to which Counsel Springwell has advanced to I-Link the aggregate principal amount of $12,000,000.
B. Counsel, an affiliate of Counsel Springwell, and I-Link entered into a Loan and Security Agreement dated as of June 6, 2001 (the "June 6th Loan Agreement"). The June 6th Loan Agreement was amended on June 27, 2002 to increase the total borrowing to $24,306,865.91.
C. In addition to the principal amount outstanding under the June 6th Loan Agreement, Counsel Springwell has advanced additional amounts to I-Link since July 25, 2002 (the "Interim Advances").
D. Pursuant to a Loan and Security Agreement dated as of June 4, 2001 (the "June 4th Loan Agreement"), Counsel advanced the principal amount of $14,850,000 to WorldxChange Corp., a Delaware corporation and wholly-owned subsidiary of I-Link ("WxC"), of which amount $12,350,000 remains outstanding.
E. The Board of directors of I-Link will be meeting in the weeks following the execution of this Agreement to adopt a new operating plan (the "Operating Plan").
F. Counsel Springwell and Counsel Corporation have committed to fund, through long-term intercompany advances or equity contributions, all capital investment, working capital or other operational cash requirements of I-Link through April 15, 2003 as set forth in that certain letter to I-Link, dated April 30, 2002 (the "Keep Well Letter").
G. The parties previously entered into a Debt Restructuring Agreement dated July 25, 2002 (the "Debt Restructuring Agreement").
I. The parties wish to amend certain provisions of the Debt Restructuring Agreement.
Accordingly, the parties hereby agree that the Debt Restructuring Agreement is hereby amended and restated in its entirety to read as follows:
1. Closing Date. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of I-Link, or such other place as the parties may mutually agree, on or before the third business day (the "Closing Date") following the day on which the Proposals (as defined below) are approved by the stockholders of I-Link and become effective in accordance with the Amended and Restated Articles of Incorporation of I-Link, as amended through the date of the Stockholders Meeting (as defined below).
2. Actions to be taken at the Closing. The parties hereby agree that, at the Closing and in exchange for and in satisfaction of (i) the aggregate principal amount outstanding as of the Closing Date under the June 6th Loan Agreement, and all accrued and unpaid interest thereon through the Closing Date, (ii) the outstanding principal amount of the Interim Advances, together with interest
1
thereon at the rate of ten percent (10%) per annum from the date of each such advance through the Closing Date and (iii) the principal amount of additional advances made by Counsel Springwell to I-Link after the date hereof pursuant to the Keep Well Letter or the Operating Plan (as defined below), together with interest thereon at the rate of ten percent (10%) per annum from the date of each such advance through the Closing Date (the amounts in clauses (i), (ii) and (iii) being hereinafter referred to as the "Aggregate Amount") I-Link shall issue to Counsel Springwell the number of shares of Common Stock equal to the quotient of (i) the Aggregate Amount, divided by (ii) $0.18864 (the "Effective Price"). Counsel represents and warrants to I-Link that it has not assigned, pledged or otherwise transferred or encumbered its rights under the June 6th Loan Agreement.
3. Commitment to Provide Additional Funding
(a) In addition to providing funding under the Keep Well Letter, Counsel Springwell shall fund the operations of I-Link through the date of adoption of the Operating Plan, and hereafter shall fund the operating cash flow deficit, if any, inherent in the Operating Plan hereafter adopted by the I-Link Board of Directors. Counsel Springwell shall also (i) subject to stockholder approval of the Proposals, advance to I-Link any and all amounts paid or payable by I-Link to stockholders of I-Link that exercise their dissenters' rights in connection with the transactions subject to this Agreement and (ii) advance to I-Link the annual premium to renew the existing Directors and Officers insurance coverage (which is and shall be separate and distinct from insurance policies maintained by Counsel or their affiliated entities) for an additional one year from the current date of its expiration in November 2002, and Counsel and Counsel Springwell represent and covenant that they will do any and all things reasonably necessary to cause such insurance to be continued in effect until at least November 2003 in types and amounts that are, at a minimum, currently in force, so long as such insurance is available on commercially reasonable terms. In addition, Counsel Springwell shall advance to I-Link all costs and fees incurred relating to the work of the current special committee of I-Link's board of directors ("Special Committee") and its legal, accounting and financial advisors in connection with the transaction contemplated by this Agreement and all accounting, legal and regulatory costs, investment banking fees and expenses, all costs incident to I-Link's annual stockholder meeting and any special stockholder meetings for soliciting and obtaining stockholder approval of the transactions contemplated hereby, and all other direct costs incurred by I-Link in connection with consummating the transaction contemplated by this Agreement (the "Special Committee Costs"). The parties acknowledge and agree that Counsel Springwell's payment of the amounts specified in the preceding sentence of this Section 3(a) shall not reduce Counsel Springwell's funding obligations under this Agreement.
Any such funding provided by Counsel Springwell pursuant to this Section 3(a) (other than the amounts referenced in the penultimate sentence of the prior paragraph and any amounts advanced for acquisitions) prior to December 31, 2002 shall constitute a purchase of additional shares of Common Stock for a purchase price per share equal to the Effective Price; provided that in the event that the Board of Directors of I-Link hereafter determines to acquire the assets or equity interests of any other entity, I-Link and Counsel Springwell agree that any acquisition cost related to such acquisition will be financed, at the option of Counsel Springwell, either by way of equity from Counsel Springwell constituting a purchase of additional shares of Common stock for a purchase price per share equal to the average closing transaction price of a share of I-Link common stock on the twenty (20) trading days preceding the funding or alternatively a purchase money loan arrangement similar in form and substance to the June 6th Loan Agreement. Counsel Springwell shall cause each disbursement to be made within ten (10) calendar days of the receipt by Counsel Springwell of a written request to fund. I-Link shall issue certificates representing the purchased shares concurrently
2
with or subsequent to such fundings. All funding referenced in this Section 3(a) shall be provided from time to time, when, as and if requested in writing by I-Link.
(b) Any additional funding provided by Counsel Springwell pursuant to the Operating Plan in each month during the 2003 calendar year shall constitute a purchase of additional shares of Common Stock for a purchase price per share equal to the average closing transaction price of a share of I-Link common stock on the twenty (20) trading days preceding the funding.
4. I-Link Financial Obligations Surviving This Agreement. Counsel and Counsel Springwell, jointly and severally, represent, warrant and agree that from and after the Closing Date I-Link shall owe no amounts to Counsel, Counsel Springwell or WxC except (i) those amounts that will become due and owing to Counsel under the March 1st Loan Agreement and (ii) such amounts as may be payable from time to time under the WxC Agreement; and that there is no default under the March 1st Loan Agreement as of the date hereof.
5. Amendments to the March 1st Loan Agreement. The parties represent, warrant and agree that the issuance of Common Stock by I-Link pursuant to this Agreement results in weighted-average conversion price adjustment pursuant to the provisions of the March 1st Loan Agreement and that the existing conversion price shall be adjusted in accordance with the terms of the March 1st Loan Agreement.
6. Securities Law Representations. Counsel Springwell acknowledges that the issuance of shares of Common Stock pursuant to the terms of this Agreement (the "Shares") has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), the certificates representing the Shares shall bear customary securities registration legends. Counsel Springwell hereby represents and warrants to I-Link that:
(a) The Shares will be acquired for Counsel Springwell's own account and not with a view to, or intention of, distribution thereof in violation of the Securities Act, or any applicable state securities laws, and the Shares will not be disposed of in contravention of the Securities Act or any applicable state securities laws.
(b) Counsel Springwell is sophisticated in financial matters and is able to evaluate the risks and benefits of the investment in the Shares.
(c) Counsel Springwell is able to bear the economic risk of its investment in the Shares for an indefinite period of time because the Shares have not been registered under the Securities Act and, therefore, cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available.
7. Proxy Statement.
(a) Subject to Section 7(b) hereof, I-Link, acting through its Board of Directors, shall:
(i) duly call, give notice of, convene and hold an annual or special meeting of its stockholders (the "Stockholders Meeting") as soon as practicable following the date hereof for the purpose of considering and taking action upon the following proposals (the "Proposals"): (A) an amendment to the Amended and Restated Articles of Incorporation of I-Link to increase the authorized number of shares of Common Stock from 300,000,000 shares to 900,000,000 shares and (B) an amendment to the Amended and Restated Articles of Incorporation of I-Link deleting Article VI thereof.
(ii) prepare and file with the SEC a preliminary proxy relating to this Agreement as soon as reasonably practicable and obtain and furnish the information required to be included by the SEC in the Proxy Statement and, after consultation with Counsel
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Springwell, use its best efforts to respond promptly to any comments made by the SEC with respect to the preliminary proxy and cause a definitive proxy (as amended or supplemented, the "Proxy Statement") to be mailed to its stockholders;
(iii) include in the definitive Proxy Statement the written opinion of the financial advisor to the Special Committee of the Board of Directors of I-Link that the transactions contemplated by this Agreement are fair to the stockholders of I-Link from a financial point of view;
(iv) afford to all of the stockholders of I-Link dissenters' rights under Florida law relating to the matters to be presented to them for consideration at the Stockholder Meeting and relating to the subject matter of this Agreement; and
(v) use its reasonable best efforts to obtain the approval of the Proposals by the holders of the requisite number of issued and outstanding shares of capital stock of I-Link.
(b) The Board of Directors of I-Link shall recommend approval and adoption of the Proposals by I-Link's stockholders. The Board of Directors of I-Link shall not be permitted to withdraw, amend or modify in a manner adverse to Counsel and Counsel Springwell such recommendation (or announce publicly its intention to do so), except that prior to the Stockholder Meeting, the Board of Directors of I-Link shall be permitted to withdraw, amend or modify its recommendation (or announce publicly its intention to do so) but only if the Board of Directors of I-Link shall have determined in its good faith judgment, based upon the advice of outside counsel, that it is obligated by its fiduciary obligations under applicable law to withdraw, amend or modify such recommendation. If the Stockholder Meeting is being held, the recommendation of the Board of Directors of I-Link shall be included in the Proxy Statement.
(c) Each of Counsel and Counsel Springwell agrees that it will provide I-Link with the information required to be included in the Proxy Statement and will vote, or cause to be voted, all of the shares of the Common Stock then owned by it, directly or indirectly, or over which it has the power to vote, in favor of approval of the Proposals. Counsel and Counsel Springwell shall have the right to review in advance all characterizations and information related to them, this Agreement and the transactions contemplated hereby which appear in the Proxy Statement.
(d) Each of Counsel, Counsel Springwell and I-Link agrees promptly to correct any information provided by it for use in the Proxy Statement as and to the extent it shall have become false or misleading in any material respect and to supplement the information provided by it specifically for use in the Proxy Statement to include any information that shall have become necessary, in order to make statements contained therein, in light of the circumstances in which they were made, not misleading, and each of Counsel, Counsel Springwell and I-Link further agrees to take all steps necessary to cause the Proxy Statement, as so corrected or supplemented, to be filed with the SEC and to be disseminated to its stockholders in each case as and to the extent required by applicable federal securities laws.
8. Covenant. Counsel Springwell hereby agrees that, if the Proposals are approved by the stockholders at the Stockholders Meeting, it shall not take any action under Section 607.1104 of the Florida Business Corporation Act prior to June 30, 2003.
9. Expenses. Counsel Springwell shall bear all costs, fees and expenses in connection with this Agreement and the transactions contemplated hereby.
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10. Notices. All notices and other communications hereunder shall be in writing and shall be deemed given when delivered personally or when received if sent by registered or certified mail, return receipt requested, by facsimile (with confirmation of receipt) or by reputable overnight delivery service, to the parties at the following addresses (or at such other address as a party may specify by like notice):
(a) If to I-Link:
13751 S. Wadsworth Park Dr.
Draper, UT 84020
Attention: Chief Executive Officer
Facsimile: (801) 576-4295
with copy to:
13751 S. Wadsworth Park Dr.
Draper, UT 84020
Attention: Legal Department
Facsimile: (801) 553-6890
(b) If to Counsel or Counsel Springwell:
Counsel Corporation
The Exchange Tower
Suite 1300, P.O. Box 435
130 King Street West
Toronto, Ontario M5X 1E3
Attention: Chief Executive Officer
Facsimile: (416) 866-3061
with a copy to:
Counsel Springwell Communications LLC
One Landmark Square
Suite 320
Stamford, CT 06901
Attention: Managing Director
Facsimile: (203) 961-9001
11. No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its rights to exercise any such or other right, power or remedy or to demand such compliance.
12. Amendment. Subject to applicable law, this Agreement may be amended, modified or supplemented only by written agreement of the parties.
13. Entire Agreement. Except as specifically provided elsewhere in this Agreement, this Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and thereof and supersedes all prior agreements, representations and understandings among the parties with respect to the subject matter hereof.
14. Further Assurances. I-Link, Counsel Springwell and Counsel agree to deliver or cause to be delivered to each other any such additional instrument or take any action as any of them may reasonably request for the purpose of carrying out transactions contemplated by this Agreement.
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15. Assignment. This Agreement shall inure to the benefit of, and be binding upon, the parties and their respective successors and assigns. This Agreement may not be assigned by a party without the prior written consent of the other party.
16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, except to the extent that the Florida Business Corporation Act is applicable.
17. Headings. The headings and captions in this Agreement are included for purposes of convenience only and shall not affect the construction or interpretation of any of its provisions.
18. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the date first above written.
| I-LINK INCORPORATED | |||
By | /s/ HENRY Y.L. TOH | ||
| Name: | Henry Y.L. Toh | ||
| Title: | Director | ||
COUNSEL CORPORATION (US) | |||
By | /s/ ALLAN SILBER | ||
| Name: | Allan Silber | ||
| Title: | President | ||
COUNSEL SPRINGWELL COMMUNICATIONS LLC | |||
By | /s/ MUFIT CINALI | ||
| Name: | Mufit Cinali | ||
| Title: | Managing Director | ||
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Florida Business Corporation Act
607.1301 Dissenters' rights; definitions. The following definitions apply to ss. 607.1302 and 607.1320:
- (1)
- "Corporation" means the issuer of the shares held by a dissenting shareholder before the corporate action or the surviving or acquiring corporation by merger or share exchange of that issuer.
- (2)
- "Fair value," with respect to a dissenter's shares, means the value of the shares as of the close of business on the day prior to the shareholders' authorization date, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable.
- (3)
- "Shareholders' authorization date" means the date on which the shareholders' vote authorizing the proposed action was taken, the date on which the corporation received written consents without a meeting from the requisite number of stockholders in order to authorize the action, or, in the case of a merger pursuant to s. 607.1104, the day prior to the date on which a copy of the plan of merger was mailed to each shareholder of record of the subsidiary corporation.
607.1302 Right of shareholder s to dissent.
- (1)
- Any shareholder of a corporation has the right to dissent from, and obtain payment of the fair value of his or her shares in the event of, any of the following corporate actions:
- (a)
- Consummation of a plan of merger to which the corporation is a party:
- 1.
- If the shareholder is entitled to vote on the merger, or
- 2.
- If the corporation is a subsidiary that is merged with its parent under s. 607.1104, and the shareholder s would have been entitled to vote on action taken, except for the applicability of s. 607.1104;
- (b)
- Consummation of a sale or exchange of all, or substantially all, of the property of the corporation, other than in the usual and regular course of business, if the shareholder is entitled to vote on the sale or exchange pursuant to s. 607.1202, including a sale in dissolution but not including a sale pursuant to court order or a sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholder s within 1 year after the date of sale;
- (c)
- As provided in s. 607.0902(11), the approval of a control-share acquisition;
- (d)
- Consummation of a plan of share exchange to which the corporation is a party as the corporation the shares of which will be acquired, if the shareholder is entitled to vote on the plan;
- (e)
- Any amendment of the articles of incorporation if the shareholder is entitled to vote on the amendment and if such amendment would adversely affect such stockholder by:
- 1.
- Altering or abolishing any preemptive rights attached to any of his or her shares;
- 2.
- Altering or abolishing the voting rights pertaining to any of his or her shares, except as such rights may be affected by the voting rights of new shares then being authorized of any existing or new class or series of shares;
- 3.
- Effecting an exchange, cancellation, or reclassification of any of his or her shares, when such exchange, cancellation, or reclassification would alter or abolish the shareholder's
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- 4.
- Reducing the stated redemption price of any of the shareholder's redeemable shares, altering or abolishing any provision relating to any sinking fund for the redemption or purchase of any of his or her shares, or making any of his or her shares subject to redemption when they are not otherwise redeemable;
- 5.
- Making non-cumulative, in whole or in part, dividends of any of the shareholder's preferred shares which had theretofore been cumulative;
- 6.
- Reducing the stated dividend preference of any of the shareholder's preferred shares; or
- 7.
- Reducing any stated preferential amount payable on any of the shareholder's preferred shares upon voluntary or involuntary liquidation; or
- (f)
- Any corporate action taken, to the extent the articles of incorporation provide that a voting or nonvoting shareholder is entitled to dissent and obtain payment for his or her shares.
- (1)
- A shareholder dissenting from any amendment specified in paragraph (1)(e) has the right to dissent only as to those of his or her shares which are adversely affected by the amendment.
- (2)
- A shareholder may dissent as to less than all the shares registered in his or her name. In that event, the shareholder's rights shall be determined as if the shares as to which he or she has dissented and his or her other shares were registered in the names of different shareholders.
- (3)
- Unless the articles of incorporation otherwise provide, this section does not apply with respect to a plan of merger or share exchange or a proposed sale or exchange of property, to the holders of shares of any class or series which, on the record date fixed to determine the shareholders entitled to vote at the meeting of shareholders at which such action is to be acted upon or to consent to any such action without a meeting, were either registered on a national securities exchange or designated as a national market system security on an inter-dealer quotation system by the National Association of Securities Dealers, Inc., or held of record by not fewer than 2,000 stockholders.
- (4)
- A shareholder entitled to dissent and obtain payment for his or her shares under this section may not challenge the corporate action creating his or her entitlement unless the action is unlawful or fraudulent with respect to the shareholder or the corporation.
voting rights or alter his or her percentage of equity in the corporation, or effecting a reduction or cancellation of accrued dividends or other arrearages in respect to such shares;
607.1320 Procedure for exercise of dissenters' rights.
- (1)
- (a) If a proposed corporate action creating dissenters' rights under s. 607.1302 is submitted to a vote at a shareholders' meeting, the meeting notice shall state that shareholders are or may be entitled to assert dissenters' rights and be accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A shareholder who wishes to assert dissenters' rights shall:
- 1.
- Deliver to the corporation before the vote is taken written notice of the shareholder's intent to demand payment for his or her shares if the proposed action is effectuated, and
- 2.
- Not vote his or her shares in favor of the proposed action. A proxy or vote against the proposed action does not constitute such a notice of intent to demand payment.
- (b)
- If proposed corporate action creating dissenters' rights under s. 607.1302 is effectuated by written consent without a meeting, the corporation shall deliver a copy of ss. 607.1301,
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607.1302, and 607.1320 to each shareholder simultaneously with any request for the shareholder's written consent or, if such a request is not made, within 10 days after the date the corporation received written consents without a meeting from the requisite number of shareholders necessary to authorize the action.
- (2)
- Within 10 days after the shareholders' authorization date, the corporation shall give written notice of such authorization or consent or adoption of the plan of merger, as the case may be, to each shareholder who filed a notice of intent to demand payment for his or her shares pursuant to paragraph (1)(a) or, in the case of action authorized by written consent, to each shareholder, excepting any who voted for, or consented in writing to, the proposed action.
- (3)
- Within 20 days after the giving of notice to him or her, any shareholder who elects to dissent shall file with the corporation a notice of such election, stating the shareholder's name and address, the number, classes, and series of shares as to which he or she dissents, and a demand for payment of the fair value of his or her shares. Any shareholder failing to file such election to dissent within the period set forth shall be bound by the terms of the proposed corporate action. Any shareholder filing an election to dissent shall deposit his or her certificates for certificated shares with the corporation simultaneously with the filing of the election to dissent. The corporation may restrict the transfer of uncertificated shares from the date the shareholder's election to dissent is filed with the corporation.
- (4)
- Upon filing a notice of election to dissent, the shareholder shall thereafter be entitled only to payment as provided in this section and shall not be entitled to vote or to exercise any other rights of a shareholder. A notice of election may be withdrawn in writing by the shareholder at any time before an offer is made by the corporation, as provided in subsection (5), to pay for his or her shares. After such offer, no such notice of election may be withdrawn unless the corporation consents thereto. However, the right of such shareholder to be paid the fair value of his or her shares shall cease, and the shareholder shall be reinstated to have all his or her rights as a shareholder as of the filing of his or her notice of election, including any intervening preemptive rights and the right to payment of any intervening dividend or other distribution or, if any such rights have expired or any such dividend or distribution other than in cash has been completed, in lieu thereof, at the election of the corporation, the fair value thereof in cash as determined by the board as of the time of such expiration or completion, but without prejudice otherwise to any corporate proceedings that may have been taken in the interim, if:
- (a)
- Such demand is withdrawn as provided in this section;
- (b)
- The proposed corporate action is abandoned or rescinded or the shareholders revoke the authority to effect such action;
- (c)
- No demand or petition for the determination of fair value by a court has been made or filed within the time provided in this section; or
- (d)
- A court of competent jurisdiction determines that such shareholder is not entitled to the relief provided by this section.
- (5)
- Within 10 days after the expiration of the period in which shareholders may file their notices of election to dissent, or within 10 days after such corporate action is effected, whichever is later (but in no case later than 90 days from the shareholders' authorization date), the corporation shall make a written offer to each dissenting shareholder who has made demand as provided in this section to pay an amount the corporation estimates to be the fair value for such shares. If the corporate action has not been consummated before the expiration of the 90-day period after the
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- (a)
- A balance sheet of the corporation, the shares of which the dissenting shareholder holds, as of the latest available date and not more than 12 months prior to the making of such offer; and
- (b)
- A profit and loss statement of such corporation for the 12-month period ended on the date of such balance sheet or, if the corporation was not in existence throughout such 12-month period, for the portion thereof during which it was in existence.
shareholders' authorization date, the offer may be made conditional upon the consummation of such action. Such notice and offer shall be accompanied by:
- (6)
- If within 30 days after the making of such offer any shareholder accepts the same, payment for his or her shares shall be made within 90 days after the making of such offer or the consummation of the proposed action, whichever is later. Upon payment of the agreed value, the dissenting shareholder shall cease to have any interest in such shares.
- (7)
- If the corporation fails to make such offer within the period specified therefor in subsection (5) or if it makes the offer and any dissenting shareholder or shareholders fail to accept the same within the period of 30 days thereafter, then the corporation, within 30 days after receipt of written demand from any dissenting shareholder given within 60 days after the date on which such corporate action was effected, shall, or at its election at any time within such period of 60 days may, file an action in any court of competent jurisdiction in the county in this state where the registered office of the corporation is located requesting that the fair value of such shares be determined. The court shall also determine whether each dissenting shareholder, as to whom the corporation requests the court to make such determination, is entitled to receive payment for his or her shares. If the corporation fails to institute the proceeding as herein provided, any dissenting shareholder may do so in the name of the corporation. All dissenting shareholders (whether or not residents of this state), other than shareholders who have agreed with the corporation as to the value of their shares, shall be made parties to the proceeding as an action against their shares. The corporation shall serve a copy of the initial pleading in such proceeding upon each dissenting shareholder who is a resident of this state in the manner provided by law for the service of a summons and complaint and upon each nonresident dissenting shareholder either by registered or certified mail and publication or in such other manner as is permitted by law. The jurisdiction of the court is plenary and exclusive. All shareholder s who are proper parties to the proceeding are entitled to judgment against the corporation for the amount of the fair value of their shares. The court may, if it so elects, appoint one or more persons as appraisers to receive evidence and recommend a decision on the question of fair value. The appraisers shall have such power and authority as is specified in the order of their appointment or an amendment thereof. The corporation shall pay each dissenting shareholder the amount found to be due him or her within 10 days after final determination of the proceedings. Upon payment of the judgment, the dissenting shareholder shall cease to have any interest in such shares.
- (8)
- The judgment may, at the discretion of the court, include a fair rate of interest, to be determined by the court.
- (9)
- The costs and expenses of any such proceeding shall be determined by the court and shall be assessed against the corporation, but all or any part of such costs and expenses may be apportioned and assessed as the court deems equitable against any or all of the dissenting shareholders who are parties to the proceeding, to whom the corporation has made an offer to pay for the shares, if the court finds that the action of such shareholders in failing to accept such offer was arbitrary, vexatious, or not in good faith. Such expenses shall include reasonable compensation for, and reasonable expenses of, the appraisers, but shall exclude the fees and expenses of counsel for, and experts employed by, any party. If the fair value of the shares, as determined, materially exceeds the amount which the corporation offered to pay therefor or if no offer was made, the court in its discretion may award to any shareholder who is a party to the proceeding such sum as
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the court determines to be reasonable compensation to any attorney or expert employed by the shareholder in the proceeding.
- (10)
- Shares acquired by a corporation pursuant to payment of the agreed value thereof or pursuant to payment of the judgment entered therefor, as provided in this section, may be held and disposed of by such corporation as authorized but unissued shares of the corporation, except that, in the case of a merger, they may be held and disposed of as the plan of merger otherwise provides. The shares of the surviving corporation into which the shares of such dissenting shareholders would have been converted had they assented to the merger shall have the status of authorized but unissued shares of the surviving corporation.
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I-LINK INCORPORATED
AMENDMENT TO THE ARTICLES OF INCORPORATION
INCREASING I-LINK INCORPORATED'S AUTHORIZED NUMBER
OF
SHARES OF COMMON STOCK (PAR VALUE $.007 PER SHARE)
FROM 150,000,000 TO 300,000,000 SHARES AND
SETTING FORTH THE TERMS OF THE REVERSE STOCK SPLIT OF
I-LINK INCORPORATED'S SHARES OF COMMON STOCK (PAR
(PAR VALUE $.007 PER SHARE).
The current language of Article III of the Articles of Incorporation of
I-Link Incorporated reads, in its pertinent part, as follows:
"a. One Hundred and Fifty Million (150,000,000) shares of common stock,
having a par value of $.007 per share (the "Common Stock"), and" AND NAME CHANGE
I. The proposed change to the current language of Article III of the Articles of Incorporation recommended by all of the members of the Board of the Directors of I-Link Incorporated will be accomplished by deleting paragraph A.A as it is now in its entirety and substituting the following for it:
"a(1). Three Hundred Million (300,000,000) shares of common stock, having a par value of $.007 per share (the "Common Stock").
"a(2). Effective 12:01 a.m. on , 20012003 (the "Effective Date"), each one (1) share of Common Stock of the Company's issued and outstanding shall, by virtue of this amendment of the of the Company's Articles of Incorporation, be combined into one-sixthone-twentieth (1/6)20th) of one (1) share of fully paid and nonassessablenon-assessable Common Stock of the Company, subject to treatment of fractional share interests described below. Following the effectiveness of these Articles of Amendment, the Company will evidence the reverse stock split effected by this paragraph (a(2)) pursuant to the procedures of the Company.
(i) No fractional shares of Common Stock of the Company shall be issued. No Stockholder of the Company shall transfer any fractional shares of Common Stock of the Company. The Company shall not recognize on its stock record books any purported transfer of any fractional shares of Common Stock of the Company.
(ii) A holder of Common Stock, who immediately prior to the Effective Date, owns a number of shares of Common Stock of the Company which is not evenly divisible by the reverse split ratio shall, with respect to the fractional interest, be issued a number of shares of new Common Stock of the Company, be rounded to the nearest whole number."
B-1
II. Article I of the Articles of Incorporation of I-Link Incorporated shall be deleted in the entirety and the following shall be substituted therefor:
"Article I. The name of the corporation is Acceris Communications, Inc."
I-LINK INCORPORATED
2001
2003 STOCK OPTION AND APPRECIATION RIGHTS PLAN
(AS ADOPTED ON FEBRUARY 12, 2003)
ARTICLE I
ESTABLISHMENT AND PURPOSE
Section 1.1 I-Link Incorporated, a Florida corporation (the "Company"), hereby establishes an equity incentive plan to be named the 20012003 Stock Option and Appreciation Rights Plan (the "2001"2003 Plan" or "Plan").
Section 1.2 The purpose of the 20012003 Plan is to induce persons who are officers, directors, employees and consultants of the Company or any of its subsidiaries who are in a position to contribute materially to the Company's prosperity to remain with the Company, to offer such persons incentives and rewards in recognition of their contributions to the Company's progress, and to encourage such persons to continue to promote the best interests of the Company. The 20012003 Plan provides for options which qualify as incentive stock options ("Incentive Options") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to be issued to such persons who are employees or officers, as well as options which do not so qualify ("Non-Qualified Options") to be issued to officers, directors, employees and consultants.
Section 1.3 This Plan shall be governed by, and construed in accordance with, the laws of the State of Florida.
[Florida].
Section 1.4 All stock options and SARs, granted by the Company on or after the date that this 20012003 Plan has been approved or adopted by the Company's stockholders, shall be governed by the terms and conditions of this 20012003 Plan unless the terms of such option or SAR specifically indicate that it is not to be governed by this 20012003 Plan.
Section 2.1 All determinations under the 20012003 Plan concerning the selection of persons eligible to receive awards under the 20012003 Plan and with respect to the timing, pricing and amount of a grant or award under this 20012003 Plan shall be made by the administrator (the "Administrator") of the 20012003 Plan. The Administrator shall be either (a) the Company's Board of Directors (the "Board"), or (b) in the discretion of the Board, a committee (the "Committee") that is composed solely of two or more members of the Board. In the event the Committee is the Administrator, the Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places as it may determine. In such case, a majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the Committee, shall be deemed the acts of the Committee. With respect to persons subject to Section 16 of the Securities Exchange Act of 1934 ("Exchange Act"), transactions under this 20012003 Plan are intended to comply with all applicable conditions of Rule 16b-3 ("Rule 16b-3") or its successor under the Exchange Act, as such may be amended from time to time. To the extent any provision of the 20012003 Plan or action by the Administrator fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Administrator.
C-1
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Section 2.2 The provisions of this 20012003 Plan relating to Incentive Options are intended to comply in every respect with Section 422 of the Code and the regulations promulgated thereunder ("Section 422"). In the event any future statute or regulation shall modify Section 422, this 20012003 Plan shall be deemed to incorporate by reference such modification. Any stock option agreementStock Option Agreement relating to any Incentive Option granted pursuant to this 20012003 Plan outstanding and unexercised at the time that any modifying statute or regulation becomes effective shall also be deemed to incorporate by reference such modification, and no notice of such modification need be given to the optionee. Any stock
option agreementStock Option Agreement relating to an Incentive Option shall provide that the optionee hold his stock received upon exercise of such Incentive Option for a minimum of two years from the date of grant of the Incentive Option and one year from the date of the exercise of such Incentive Option absent the written approval, consent or waiver of the Committee.
Section 2.3 All determinations made by the Administrator with respect to award grants to: (i) the chief executive officer of the Company or an individual acting in that capacity; (ii) one of the four highest compensated officers (other than the chief executive officer) of the Company; or (iii) an individual reasonably deemed likely, in the judgment of the Board of Directors or the Committee, to become an employee described in clause (i) or (ii) of this paragraph within the exercise period of any contemplated option, shall be made only by those directors who qualify as an "outside director" within the meaning of Treasury Regulation Sect. 1.162-27(e)(3), as that Regulation may be amended from time to time (the "Regulation"), under the Code, and all other directors must abstain from making any such award determinations. In addition to the foregoing limitation and any others set forth by this Plan, the Committee shall not make an award under this Plan which will result in the grant to any individual of more than [1,500,000] shares of Common Stock under this Plan. This limitation is subject to adjustment at the Board's discretion pursuant to Article IX herein. This limitation shall be calculated by including the number of shares of Common Stock underlying the exercise of any Option granted pursuant to this Plan (if any).
Section 2.4 If any provision of this 20012003 Plan is determined to disqualify the shares purchasable pursuant to the Incentive Options granted under this 20012003 Plan from the special tax treatment provided by Section 422, such provision shall be deemed to incorporate by reference the modification required to qualify the shares for said tax treatment.
Section 2.5 The Company shall grant Incentive Options and Non-Qualified Options (collectively, "Options") and SARs under the 20012003 Plan in accordance with determinations made by the Board or the Committee pursuant to the provisions of the 20012003 Plan. All Options shall be evidenced by a Stock Option Agreement and all SARs shall be evidenced by a Stock Appreciation Rights Agreement (which may or may not be incorporated into a Stock Option Agreement at the sole discretion of the Administrator). All Options granted pursuant to the 20012003 Plan shall be clearly identified as Incentive Options or Non-Qualified Options. The Board or the Committee may from time to time adopt (and thereafter amend or rescind) such rules and regulations for carrying out the 20012003 Plan and take such action in the administration of the 20012003 Plan, not inconsistent with the provisions hereof, as it shall deem proper. The Board or, subject to the supervision of the Board, the Committee, shall have plenary discretion, subject to the express provisions of this 20012003 Plan, to determine which officers, directors, employees and consultants shall be granted Options, the number of shares subject to each Option, the time or times when an Option may be exercised (whether in whole or in installments), the terms and provisions of the respective Option agreements (which need not be identical), including such terms and provisions which may be amended from time to time as shall be required, in the judgment of the Board or the Committee, to conform to any change in any law or regulation applicable hereto, and whether SARs hereto shall be granted pursuant to Article VIII; and to make all other determinations deemed necessary or advisable for the administration of the 20012003 Plan. The interpretation and construction of any provisions of the 20012003 Plan by the Board or the Committee (unless otherwise determined by the Board) shall be final, conclusive and binding upon all persons.
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Section 2.6 No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the 20012003 Plan or any Option or SAR granted under it. A member of the Board or the Committee shall be indemnified by the Company, pursuant to the
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20012003 Plan.
ARTICLE III
TOTAL NUMBER OF SHARES AVAILABLE TO BE OPTIONED OR GRANTED
Section 3.1 There shall be reserved for issuance or transfer upon exercise of Options, to be granted from time to time under this 20012003 Plan, an aggregate of 14,000,000forty million (40,000,000) shares of Common Stock, $.001$0.007 par value per share, of the Company (subject to adjustment as provided in Article XIX hereof). The shares issued by the Company under the 20012003 Plan may be either Treasury shares or authorized but unissued shares, as the Board from time to time may determine.
Section 3.2 In the event that any outstanding Options under the 20012003 Plan for any reason should expire or are terminated without having been exercised in full; or shares of Common Stock subject to Options are surrendered in whole or in part pursuant to SARs granted under Article VIII hereof (except to the extent that shares of Common Stock are paid to the holder of the Option upon such surrender) should be returned to Treasury, the unpurchased shares subject to such Option and any such surrendered shares or shares returned to Treasury may again be available for transfer under the 20012003 Plan.
Section 3.3 No Options or SARs shall be granted pursuant to this 20012003 Plan to any optionee after the tenth anniversary of the earlier of the date that this 20012003 Plan is adopted by the Board or the date that this 20012003 Plan is approved by the Company's stockholders.
Section 4.1 Non-Qualified Options and SARs may be granted pursuant to this 20012003 Plan only to officers, directors, employees and consultants of the Company or any of its subsidiaries, as selected by the Board or the Committee, and Incentive Options may be granted pursuant to this 20012003 Plan only to officers, directors who are also employees, and employees of the Company or any of its subsidiaries, as selected by the Committee. Persons granted Options and/or SARs pursuant to this 20012003 Plan are hereinafter referred to as "Optionees." For purposes of determining who is an employee with respect to eligibility for Incentive Options, Section 422 shall govern. The Board or the Committee may determine in its sole discretion that any person who would otherwise be eligible to be granted Options and SARs, shall, nonetheless, be ineligible to receive any award under this 20012003 Plan.
Section 4.2 The Board or the Committee will, in its discretion, determine the persons to be granted Options or SARs, the time or times at which Options or SARs shall be granted; with respect to Options, the number of shares subject to each Option; the terms of a vesting or forfeiture schedule, if any,any; the type of Option issued,issued; the period during which any such options may be exercised; the manner in which Options may be exercised and all other terms and conditions of the Options; provided, however, no Option or SAR will be made which has terms or conditions inconsistent with this 20012003 Plan. Relevant factors in making such determinations may include the value of the services rendered by the respective Optionee, his present and potential contributions to the Company, and such other factors which are deemed relevant in accomplishing the purpose of the 20012003 Plan.
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ARTICLE V
TERMS AND CONDITIONS OF OPTIONS
Section 5.1 Each Option granted under the 20012003 Plan shall be evidenced by a STOCK OPTION AGREEMENTStock Option Agreement in a form not inconsistent with the 20012003 Plan, provided that the following terms and conditions shall apply:
(a) The price at which each share of Common Stock covered by an Option may be purchased ("OPTION EXERCISE PRICE"Option Exercise Price") shall be set forth in the Stock Option Agreement and shall be determined by the Board or the Committee, provided that the OPTION EXERCISE PRICEOption Exercise Price for any Incentive Option shall not be less than the "FAIR MARKET VALUE" OF THE COMMON STOCK AT THE TIME OF
GRANT AS DEFINED IN SECTION 6.1(B)"Fair Market Value" of the Common Stock at the time of grant as defined in Section 5.1(b). Notwithstanding the foregoing, if an Incentive Option to purchase shares is granted pursuant to this 20012003 Plan to an Optionee who, on the date of the grant, directly or indirectly owns more than 10% of the voting power of all classes of stock of the Company or its parent or subsidiary, not including the stock obtainable under the Option, the minimum Option Exercise Price of such Option shall be not less than 110% of the "FAIR MARKET VALUE""Fair Market Value" of the stock on the date of grant.
(b) The "FAIR MARKET VALUE""Fair Market Value" shall be determined by the Board or the Committee, which determination shall be binding upon the Company and its officers, directors, employees and consultants. The determination of the Fair Market Value shall be based upon the following methodology: (i) if the Common Stock is not listed and traded upon a recognized securities exchange and there is no report of stock prices with respect to the Common Stock published by a recognized stock quotation service, on the basis of the recent purchases and sales of the Common Stock in arms-length transactions; or (ii) if the Common Stock is not then listed and traded upon a recognized securities exchange or quoted on The Nasdaq Stock Market, Inc. ("Nasdaq"), and there are reports of stock prices by a recognized quotation service, on the basis of quotations for such stock, based upon the average of the closing bid prices of the Common Stock for the five most recent trading days preceding the date of grant ("Five-Day Average"); or (ii)(iii) if the Common Stock shall then be listed and traded upon a recognized securities exchange or quoted on Nasdaq, upon the basis of the Five-Day Average preceding the date of grant on such recognized securities exchange; or, if the Common Stock was not traded on such date, upon the basis of the Five-Day Average nearest preceding that date. In the absence of any of the above-referenced evidence of Fair Market Value, the Board or the Committee shall consider such other factors relating to the Fair Market Value of the Common Stock, as it shall deem appropriate.
(c) For the purpose of determining whether an Optionee owns more than 10% of the voting power of all classes of stock of the Company, an Optionee is considered to own those shares which are owned directly or indirectly through brothers and sisters (including half-blooded siblings), spouse, ancestors and lineal descendants; and proportionately as a stockholder of a corporation, a partner of a partnership, and/or a beneficiary of a trust or an estate that owns shares of the Company.
(d) Notwithstanding any other provision of this 20012003 Plan, in accordance with the provisions of Section 422(d) of the Code, to the extent that the aggregate Fair Market Value (determined at in accordance with Section 5.1(b)) of the stock of the Company with respect to which Incentive Options (without reference to this provision) are exercisable for the first time by any individual in any calendar year under any and all stock option plans of the Company, its subsidiary corporations and its parent (if any) exceeds $100,000, such Options shall be treated as Non-Qualified Options.
(e) An Optionee may, in the Board or the Committee's discretion, be granted more than one Incentive Option or Non-Qualified Option during the duration of this 20012003 Plan, and may be
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(f) The duration of any Option and any right or SAR related to the Option shall be within the sole discretion of the Board or the Committee; provided, however, that any Incentive Option granted to a 10% or less stockholder or any Non-Qualified Option shall, by its terms, be exercised within ten years after the date the Option is granted and any Incentive Option granted to a greater than 10% stockholder shall, by its terms, be exercised within five years after the date the Option is granted.
(g) Any Option and any right or SAR related thereto shall not be transferable by the Optionee other than by will, or by the laws of descent and distribution. An Option may be exercised during the Optionee's lifetime only by the Optionee.
(h) At least six months shall elapse from the date on which an Option is granted to a director, officer or beneficial owner of more than 10% of the outstanding Common Stock under this 20012003 Plan by the Board (or the Committee) to the date on which any share of Common Stock underlying such Option is sold or any SAR associated with such Option is exercised, unless the Board or the Committee otherwise consents in writing.
(i) In the event that stockholder approval of the 20012003 Plan is not obtained within one year of the adoption of the 20012003 Plan by the Board or within such other time period required under Section 422 and the regulations thereunder, all Options issued and issuable hereunder shall automatically be deemed to be Non-Qualified Options.
(j) The Committee may impose such other conditions with respect to the exercise of options, including without limitation, any conditions relating to the application of federal or state securities laws, as it may deem necessary or advisable.
ARTICLE VI
EMPLOYMENT OR SERVICE OF OPTIONEE
Section 6.1 If the employment or service of an Optionee is terminated for cause, any vested or unvested Options, or rights to Options (collectively referred to herein as "Option Rights"), or SARs, if any, of such Optionee under any then outstanding Non-Qualified or Incentive Option shall terminate immediately. Unless the Board or the Committee determines to define "cause" differently and such definition is set forth in the Stock Option Agreement, "cause" shall mean incompetence in the performance of duties, disloyalty, dishonesty, theft, embezzlement, unauthorized disclosure of customer lists, product lines, processes or trade secrets of the Company, individually or as an employee, partner, associate, officer or director of any organization. The determination of the existence and the proof of "cause" shall be made by the Board or the Committee and, subject to the review of any determination made by the Committee by the Board, such determination shall be binding on the Optionee and the Company.
Section 6.2 If the employment or service of the Optionee is terminated by either the Optionee or the Company for any reason other than for cause, death, or for disability, as defined in Section 22(e)(3) of the Code, the Option Rights, and SARs, if any, of such Optionee under any then outstanding Non-Qualified Option shall, subject to the provisions of Section 5.1(h) hereof, be exercisable by such Optionee at any time prior to the expiration of the Option or within three months after the date of such termination, whichever period of time is shorter, but only to the extent of the vested right to exercise the Option at the date of such termination. With respect to Incentive Options, such Options shall, subject to the provisions of Section 5.1(h) hereof, be exercisable by such Optionee at any time prior to the expiration of the Option, or within three months after the date of such C-5
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Section 6.3 In the case of an Optionee who becomes disabled, as defined by Section 22(e)(3) of the Code, the Option rights of such Optionee under any then outstanding Incentive Option shall, subject to the provisions of Section 5.1(h) hereof, be exercisable by such Optionee at any time prior to the expiration of the Option or, in the case of an Incentive Option, within three months after the date of termination of employment or service due to disability, whichever period of time is shorter, but only to the extent of the vested right to exercise the Option, and SARs if any, at the date of such termination. With respect to any then outstanding Non-Incentive Options, the Option rights of such Optionee shall, subject to the provisions of Section 6.1(h)5.1(h) hereof, be exercisable by such Optionee at any time prior to the expiration of the Option, or within three months after the date of termination of employment or service due to disability, whichever period of time is shorter, but only to the extent of the vested right to exercise the Option, and SARs, if any, at the date of such termination.
Section 6.4 In the event of the death of an Optionee, the Option rights of such Optionee under any then outstanding Incentive Option shall be exercisable by the person or persons to whom these rights pass by will or by the laws of descent and distribution, at any time prior to the expiration of the Option or within three yearsmonths after the date of death, whichever period is shorter; but only to the extent of the vested right to exercise the Option, and SARs, if any, at such time. WithLikewise, with respect to any then outstanding Non-Incentive Options, the Option rights exercisable by the person or persons to whom these rights pass by will or by the laws of descent and distribution shall, subject to the provisions of Section 5.1(h) hereof, be exercisable by person or persons, at any time prior to the expiration of the Option, or within three months after the date of death, but only to the extent of the vested right to exercise the Option, and SARs, if any, at such time. If a person or estate acquires the right to exercise a Non-Qualified or Incentive Option by bequest or inheritance, the Committee may require reasonable evidence as to the ownership of such Option, and may require such consents and releases of taxing authorities, as the Committee may deem advisable.
Section 6.5 In addition to the requirements set forth in the 20012003 Plan, the Committee or the Board may set such other targets, restrictions or other terms relating to the employment or service of the Optionee, including but not limited to a requirement that an employee must be continuously employed by the Company for such period of time as the Board or Committee, in its discretion, deems advisable before the right to exercise any portion of an Option granted to such employee will accrue, which targets, restrictions, or terms must be fulfilled or complied with, as the case may be, prior to the exercise of any portion of an Option and/or SARs, if any, granted to any Optionee.
Section 6.6 Options and/or SARs, if any, granted under the 20012003 Plan shall not be affected by any change of duties or position, so long as the Optioneeoptionee continues in the service of the Company.
Section 6.7 Nothing contained in the 20012003 Plan, or in any Option and/or SARs, if any, granted pursuant to the 20012003 Plan, shall confer upon any Optionee any right with respect to continuance of employment or service by the Company nor interfere in any way with the right of the Company to terminate the Optionee's employment or service or change the Optionee's compensation at any time.
ARTICLE VII
EXERCISE OF OPTIONS
Section 7.1 Except as provided in this Article VIII,VII, an Option shall be exercised by tender to the Company of the total Option Exercise Price of the shares with respect to which the Option is exercised and written notice of the exercise. The right to purchase shares shall be cumulative so that, once the right to purchase any shares has vested, such shares or any part thereof may be purchased at any time thereafter until the expiration or termination of the Option. A partial exercise of an Option shall not C-6
20012003 Plan, as to the remaining number of shares subject to the Option. The Option Exercise Price of the shares shall be in United States dollars, payable in cash or by certified bank check. Notwithstanding the
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foregoing, in lieu of cash, an Optionee may, with the approval of the Board or the Committee, exercise his Optionoption by tendering to the Company shares of the Common Stock of the Company owned by him and having an aggregate Fair Market Value at least equal to the total Option Exercise Price or by tendering part or all of one or more Options to purchase Common Stock of the Company for which the aggregate Fair Market Value of the Common Stock underlying exercise of the Option shall be at least equal to the Option Exercise Price. The Fair Market Value of any shares of Common Stock so surrendered shall be determined by the Board or the Committee by application of the methodology set forth in Section 5.1(b) hereof; except that the term "date of surrender" shall be substituted for the term "date of grant" in applying such Section 5.1(b).
Section 7.2 Except as provided in Article VI, an Option may not be exercised unless the holder thereof is an officer, director, employee or consultant of the Company at the time of exercise.
Section 7.3 No Optionee, or Optionee's executor, administrator, legatee, distributee or other permitted transferee, shall be deemed to be a holder of any shares subject to an Option for any purpose whatsoever unless and until a stock certificate or certificates for such are issued to such person(s) under the terms of the 20012003 Plan. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Article IX hereof.
Section 7.4 If (i) the listing, registration or qualification of the Options issued hereunder, or of any securities that may be purchased upon exercise of such Options (the "Subject Securities") upon any securities exchange or quotation system, or under federal or state law is necessary as a condition of or in connection with the issuance or exercise of the Options, or (ii) the consent or approval of any governmental regulatory body is necessary as a condition of, or in connection with, the issuance or exercise of the Options, the Company shall not be obligated to deliver the certificates representing the Subject Securities or to accept or to recognize an Option exercise unless and until such listing, registration, qualification, consent or approval shall have been effected or obtained. The Company will take reasonable action to so list, register, or qualify the Options and the Subject Securities, or effect or obtain such consent or approval, so as to allow for their issuance.
Section 7.5 An Optionee may be required to represent to the Company as a condition of his exercise of Options issued under this 20012003 Plan: (i) that the Subjectsubject Securities acquired upon Option exercise are being acquired by him for investment and not with a view to distribution or resale, unless counsel for the Company is then of the view that such a representation is not necessary and is not required under the Securities Act of 1933, as amended, (the "Securities Act") or any other applicable statute, law, regulation or rule; and (ii) that the Optionee shall make no exercise or disposition of an Option or of the Subject Securities in contravention of the Securities Act, the Exchange Act or the rules and regulations thereunder. Optionees may also be required to provide (as a condition precedent to exercise of an Option) such documentation as may be reasonably requested by the Company to assure compliance with applicable law and the terms and conditions of the 20012003 Plan and the subject Option.
ARTICLE VIII
STOCK APPRECIATION RIGHTS
Section 8.1 The Board or the Committee may, in its discretion, grant in connection with any Option, at any time prior to the exercise thereof, SARs to surrender all or part of the Option to the extent that such Option is exercisable and receive in exchange an amount payable in cash, shares of the C-7
"date
7
"date of surrender" shall be substituted for the term "date of grant,") issuable upon the exercise of the Option or portions thereof surrendered and the Option Exercise Price payable upon the exercise of the Option or portions thereof surrendered (the "Spread"). Such SARs may be granted only under the following conditions: (a) the SARs will expire no later than the expiration of the underlying Option; (b) the SARs may be for no more than one hundred percent ("100%)"of the Spread; (c) the SARs are transferable only when the underlying Option is transferable, and under the same conditions; (d) the SARs may be exercised only when the underlying Option is eligible to be exercised; (e) the SARs may be exercised only when the Spread is positive, i.e., when the Fair Market Value of the Common Stock subject to the Option exceeds the Option Exercise Price; and (f) any SARs granted to an Optionee shall be subject to all terms, conditions and provisions governing the Options, as expressed in the 20012003 Plan and in the Option agreement issued to such Optionee pursuant to the 20012003 Plan.
Section 8.2 Each grant of an SAR under the Plan shall be evidenced by a Stock Appreciation Rights Agreement between the Optionee and the Company, which may either be a separate agreement between the Company and the Optionee, or may be incorporated into an Option Agreement between the Optionee and the Company. Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various SAR Agreements entered into under the Plan need not be identical. SARs may be granted in consideration of a reduction in the Optionee's other compensation. Each SAR Agreement shall specify the number of shares of Common Stock to which the SAR pertains and shall provide for the adjustment of such number in accordance with Article IX.
Section 8.3 Each SAR Agreement shall specify the date when all or any installment of the SAR is to become exercisable. The SAR Agreement shall also specify the term of the SAR. An SAR Agreement may provide for accelerated exercisability in the event of the Optionee's death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee's service. SARs may be awarded in combination with Options, and the SAR Agreement may provide that the SARs will not be exercisable unless the related Options are forfeited. An SAR may be included in an Incentive Option only at the time of grant but may be included in an Non-Qualified Option at the time of grant or thereafter. An SAR granted under the Plan may provide that it will be exercisable only in the event of certain conditions that are determined in the sole discretion of the Board or the Committee.
Section 8.4 Within the limitations of the Plan, the Committee may modify, extend or assume outstanding SARs or may accept the cancellation of outstanding SARs in return for the grant of new SARs for the same or a different number of shares and at the same or a different exercise price
ARTICLE IX
CHANGE IN NUMBER OF OUTSTANDING SHARES OF
STOCK, ADJUSTMENTS, REORGANIZATIONS, ETC.
Section 9.1 In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased, or changed into or exchanged for a different number of shares or kind of shares or other securities of the Company, or of another corporation, by reason of reorganization, merger, consolidation, recapitalization, reclassification, stock split, combination of shares, or a dividend payable in capital stock, appropriate adjustment may be made by the Board or the Committee in the number and kind of shares for the purchase of which Options may be granted under the 20012003 Plan, including the maximum number that may be granted to any one person. In addition, the Administrator may make appropriate adjustments in the number and kind of shares as to
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extent granted, SARs in connection therewith, and with a corresponding adjustment in the Option Exercise Price per share. Any such adjustment made by the Administrator shall be conclusive.
Section 9.2 The grant of an Option and/or any SARs granted in connection therewith, pursuant to the 20012003 Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets.
Section 9.3 Upon the dissolution or liquidation of the Company, or upon a reorganization, merger or consolidation of the Company as a result of which the outstanding securities of the class then subject Options and/or any SARs granted in connection therewith, are changed into or exchanged for cash or property or securities not of the Company's issue, or upon a sale of substantially all the property of the Company to an association, person, party, corporation, partnership, or control group as that term is construed for purposes of the Exchange Act, the 20012003 Plan shall terminate, and all Options, and any SARs granted in connection therewith, theretofore granted hereunder shall terminate unless provision be made in writing in connection with such transaction for the continuance of the 20012003 Plan and/or for the assumption of Options and/or any SARs granted in connection therewith, theretofore granted, or the substitution for such Options of options covering the stock of a successor employer corporation, or a parent or a subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices, in which event the 20012003 Plan and Options, and/or any SARs granted in connection therewith, theretoforeheretofore granted shall continue in the manner and under the terms so provided. If the 20012003 Plan and unexercised Options, and/or any SARs granted in connection therewith, shall terminate pursuant to the foregoing sentence, all persons owning any unexercised portions of Options then outstanding shall have the right, at such time prior to the consummation of the transaction causing such termination as the Company shall designate, to exercise the unexercised portions of their Options, including the portions thereof which would, but for this Section 10.39.3 not yet be exercisable; except that the exercise of any SARs after such termination shall be allowed solely at the discretion of the Board.
Section 10.1 General. To the extent required by applicable federal, state, local or foreign law, an Optionee or his successor shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company shall not be required to issue any Common Stock or make any cash payment under the Plan until such obligations are satisfied.
Section 10.2 Share Withholding. The Committee may permit an Optionee to satisfy all or part of his withholding or income tax obligations by having the Company withhold all or a portion of any shares of Common Stock that otherwise would be issued to him or by surrendering all or a portion of any shares of Common Stock that he or she previously acquired. Such shares of Common Stock shall be valued at their Fair Market Value in accordance with the methodology set forth in Section 5.1 (b) hereof, except that the term "date of surrender" shall be substituted for the term "date of grant" in applying such methodology.
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ARTICLE XI
DURATION, AMENDMENT AND TERMINATION
Section 11.1 The Board may at any time terminate the 20012003 Plan or make such amendments thereto as it shall deem advisable and in the best interests of the Company, without action on the part of the stockholders of the Company unless such approval is required pursuant to applicable law; provided, however, that no such termination or amendment shall, without the consent of the individual
9
to whom any Option shall theretofore have been granted, affect or impair the rights of such individual under such Option. Pursuant to Section 422(b)(2) of the Code, no Incentive Option may be granted pursuant to this 20012003 Plan more than ten years from the date the 20012003 Plan is adopted or the date the 20012003 Plan is approved by the stockholders of the Company, whichever is earlier.
Section 12.1 Any shares issued pursuant to the 20012003 Plan shall be subject to such restrictions on transfer and limitations as shall, in the opinion of the Board or the Committee, be necessary or advisable to assure compliance with the laws, rules and regulations of the United States government or any state or jurisdiction thereof or any other applicable law. In addition, the Board or the Committee may in any Stock Option Agreement and/or SAR impose such other restrictions upon the exercise of an Option or upon the sale or other disposition of the shares of Common Stock deliverable upon exercise thereof as the Board or the Committee may, in its sole discretion, determine, including but not limited to provisions which allow the Company to reacquire such shares at their original purchase price if the Optionee's employment terminates within a stated period after the acquisition of such shares. By accepting an award pursuant to the 20012003 Plan each Optionee shall thereby agree to any such restrictions.
Section 12.2 Any certificate issued to evidence shares issued pursuant to an Option shall bear such legends and statements as the Board or counsel to the Company shall deem advisable to assure compliance with the laws, rules and regulations of the United States government or any state or jurisdiction thereof. No shares will be delivered under the 20012003 Plan until the Company has obtained such consents or approvals from such regulatory bodies of the United States government or any state or jurisdiction thereof as the Board or counsel to the Company deems necessary or advisable.
ARTICLE XIII
FINANCIAL ASSISTANCE
Section 13.1 The Company is vested with authority under this 20012003 Plan, at the discretion of the Board, to assist any employee to whom an Optionwho is granted
hereunder (including anynot a director or executive officer of the Company or any of its subsidiaries whoand to whom an Option is also an employee)granted hereunder, in the payment of the purchase price payable on exercise of that Option, by lending the amount of such purchase price to such employee on such terms and at such rates of interest and upon such security (or unsecured) as shall have been authorized by or under authority of the Board. Any such assistance shall comply with the requirements of (a) Regulation G promulgated by the Board of the Federal Reserve System, as amended, from time to time,(b) the Sarbanes-Oxley Act of 2002, as amended, and (c) any other applicable law, rule or regulation.
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ARTICLE XIV
APPLICATION OF FUNDS
Section 14.1 The proceeds received by the Company from the sale of stock pursuant to the exercise of Options under the 20012003 Plan are to be added to the general funds of the Company and used for its corporate purposes as determined by the Board.
ARTICLE XV
EFFECTIVENESS OF PLAN
Section 15.1 This 20012003 Plan shall become effective upon adoption by the Board, and Options may be issued hereunder from and after that date subject to the provisions of Section 3.3. This 20012003 Plan must be approved by the Company's stockholders in accordance with the applicable provisions (relating to the issuance of stock or Options) of the Company's governing documents and state law or, if no
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such approval is prescribed therein, by the affirmative vote of the holders of a majority of the votes cast at a duly held stockholders meeting at which a quorum representing a majority of all the Company's outstanding voting stock is present and voting (in person or by proxy) or, without regard to any required time period for approval, by any other method permitted by Section 422 and the regulations thereunder. If such stockholder approval is not obtained within one year of the adoption of the 20012003 Plan by the Board or within such other time period required under Section 422 and the regulations thereunder, this 20012003 Plan shall remain in force, provided however, that all Options issued and issuable hereunder shall automatically be deemed to be Non-Qualified Options.
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IN WITNESS WHEREOF, pursuant to the adoption of this 20012003 Plan by the Board of Directors of the Company, this 20012003 Plan is hereby executed effective as of this 4th day of June, 2001.
January, 2003.
| I-LINK INCORPORATED | ||
Allan C. Silber President | ||
| ATTEST: | ||
[Name] Secretary |
12
ANNUAL MEETING OF STOCKHOLDERS November 26, 2003 This Proxy is Solicited on Behalf of
OF
I-LINK INCORPORATED
INDEX TO FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
PAGE
--------
NEXBELL COMMUNICATIONS INC.
Report Independent Accountants........................... D-3
Balance Sheet............................................... D-4
Statement of Operations..................................... D-5
Statement of Stockholders' Equity (Deficit)................. D-6
Statement of Cash Flows..................................... D-7
Notes to Financial Statements............................... D-8
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
Unaudited Pro Forma Combined Condensed Financial
Statements................................................ D-16
Unaudited Pro Forma Combined Condensed Balance Sheet........ D-17
Unaudited Pro Forma Combined Condensed Statements of
Operations................................................ D-18
Notes to Unaudited Pro Forma Combined Condensed Financial
Statements................................................ D-20
D-1
NEXBELL COMMUNICATIONS, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2000
D-2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Nexbell Communications, Inc.
In our opinion, the accompanying balance sheet and the related statements of
operations, of stockholders' equity (deficit) and of cash flows present fairly,
in all material respects, the financial position of Nexbell
Communications, Inc. at December 31, 2000, and the results of its operations and
its cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
June 15, 2001
Salt Lake City, Utah
D-3
NEXBELL COMMUNICATIONS, INC.
BALANCE SHEET
DECEMBER 31,
2000
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ASSETS
Current assets:
Cash and cash equivalents................................. $ 366,855
Accounts receivable, net of allowance for doubtful
accounts of $161,858.................................... 330,093
Prepaid expenses and other current assets................. 78,063
-----------
Total current assets.................................... 775,011
Property and equipment, net................................. 667,592
Deferred costs, net......................................... 36,656
Other non-current assets.................................... 47,331
-----------
Total assets............................................ $ 1,526,590
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 450,047
Accrued liabilities....................................... 250,982
Deferred revenue.......................................... 379,149
Lease incentive........................................... 255,288
Capital lease obligations, current........................ 185,140
-----------
Total current liabilities............................... 1,520,606
Deposits.................................................... 210,807
Notes payable............................................... 6,119,504
Capital lease obligations, non-current...................... 109,910
-----------
Total liabilities....................................... 7,960,827
-----------
Commitments (Note 5)
Stockholders' deficit:
Preferred stock: $0.001 par value; 20,000,000 shares
authorized; 0 shares issued and outstanding............. --
Common stock: $0.001 par value; 30,000,000 shares of
Class A and 10,000,000 Class B common stock authorized;
20,246,000 shares of Class A issued and outstanding..... 20,246
Additional paid-in capital................................ 1,174,854
Notes receivable from stockholders........................ (30,000)
Accumulated deficit....................................... (7,599,337)
-----------
Total stockholders' deficit............................. (6,434,237)
-----------
Total liabilities and stockholders' deficit............. $ 1,526,590
===========
The accompanying notes are an integral part of these financial statements.
D-4
NEXBELL COMMUNICATIONS, INC.
STATEMENT OF OPERATIONS
YEAR ENDED
DECEMBER 31,
2000
-------------
REVENUES:
Telecommunication services................................ $ 1,455,456
-----------
Total revenues.......................................... 1,455,456
OPERATING COSTS AND EXPENSES:
Telecommunication network expense......................... 4,048,943
Selling, general and administrative....................... 2,788,040
Provision for doubtful accounts........................... 164,921
Depreciation and amortization............................. 265,257
-----------
Total operating costs and expenses...................... 7,267,161
OPERATING LOSS.............................................. (5,811,705)
OTHER INCOME (EXPENSE):
Interest expense.......................................... 256,878
Interest and other income................................. (21,457)
Other expense............................................. 139,606
-----------
Total other expense..................................... 375,027
Net loss.................................................... $(6,186,732)
===========
The accompanying notes are an integral part of these financial statements.
D-5
NEXBELL COMMUNICATIONS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 2000
NOTES
COMMON STOCK ADDITIONAL RECEIVABLE FROM TOTAL
MEMBERS' --------------------- PAID-IN MEMBERS AND ACCUMULATED STOCKHOLDERS'
CAPITAL SHARES AMOUNT CAPITAL STOCKHOLDERS DEFICIT DEFICIT
---------- ---------- -------- ---------- --------------- ------------ -------------
Balance at January 1, 2000..... $1,051,100 -- $ -- $ -- $(424,000) $(1,412,605) $ (785,505)
Payment on notes receivable
from members................. -- -- -- 424,000 -- 424,000
Issuance of notes receivable
from stockholders............ (30,000) (30,000)
Issuance of common stock upon
recapitalization............. (1,051,100) 20,102,000 20,102 1,030,998 -- -- --
Exercise of common stock
options...................... -- 144,000 144 29,856 -- -- 30,000
Stock compensation expense..... -- -- -- 114,000 -- -- 114,000
Net loss....................... -- -- -- -- -- (6,186,732) (6,186,732)
---------- ---------- ------- ---------- --------- ----------- -----------
Balance at December 31, 2000... $ -- 20,246,000 $20,246 $1,174,854 $ (30,000) $(7,599,337) $(6,434,237)
========== ========== ======= ========== ========= =========== ===========
The accompanying notes are an integral part of these financial statements.
D-6
NEXBELL COMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED
DECEMBER 31,
2000
------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(6,186,732)
Adjustments to reconcile net loss to net cash used in
operating activities:
Provision for doubtful accounts......................... 164,922
Loss on disposal of assets.............................. 103,897
Depreciation and amortization........................... 265,257
Amortization of lease incentive......................... (382,932)
Stock compensation expense.............................. 114,000
Increase (decrease) from changes in operating assets and
liabilities:
Accounts receivable................................... (460,558)
Prepaid expenses and other current assets............. 2,844
Accounts payable...................................... (93,996)
Accrued liabilities................................... 258,653
Deferred revenue...................................... 352,630
Deposits.............................................. 191,666
-----------
Net cash used in operating activities............... (5,670,349)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment........................ (410,767)
-----------
Net cash used in investing activities............... (410,767)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes receivable............................ 148,686
Payments on notes receivable from members................. 424,000
Proceeds from notes payable............................... 5,866,098
-----------
Net cash provided by financing activities........... 6,438,784
-----------
Net increase in cash and cash equivalents................... 357,668
Cash and cash equivalents at beginning of year.............. 9,187
-----------
Cash and cash equivalents at end of year.................... $ 366,855
===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for income taxes................................ $ --
===========
Cash paid for interest.................................... $ --
===========
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITY:
Property and equipment acquired under capital leases...... $ 295,050
===========
Common stock acquired through issuance of notes
receivable.............................................. $ 30,000
===========
The accompanying notes are an integral part of these financial statements.
D-7
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Nexbell Communications, Inc. (the "Company") is a wholesale network
telecommunications provider, enabling the Company's customers to provide Voice
over Internet Protocol ("VoIP") solutions to their customers.
The Company was formed and registered in the State of Ohio as Intelligent
Communications LLC in May 1999. Effective March 31, 2000, the assets and
liabilities of the Company were transferred to Nexbell Communications, Inc., a
Delaware C-Corporation owned by the members of Intelligent Communications LLC,
in a transaction accounted for at historical cost as a reorganization of
entities under common control.
The Company incurred a net loss of $6,186,732 for the year ended
December 31, 2000 and as of December 31, 2000 had an accumulated deficit of
$7,599,337 and negative working capital of $745,595. The Company anticipates
that revenues generated from its operations will not be sufficient during 2001
to fund ongoing operations, product development and anticipated growth in its
subscriber base.
The Company entered into an acquisition agreement with WebToTel, Inc.,
("WebToTel") on February 22, 2001 (a subsidiary of Counsel Communications, LLC)
and WebToTel was subsequently acquired by I-Link Corporation on April 17, 2001
(see Note 9). As a result of Counsel Communications, LLC ("Counsel") being the
majority stockholder of WebToTel and I-Link Corporation, Counsel has committed
to fund, through long-term inter-company advances or equity contributions, all
capital investments, working capital or other operational cash requirements of
the companies through April 15, 2002.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
The Company recognizes revenues as services are provided to the customer.
Payment is received on a monthly basis for the following month's services. This
revenue is deferred until service has been provided.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
deposits cash and cash equivalents with high credit quality financial
institutions located in Ohio. At times, such amounts may exceed the F.D.I.C.
limits. The Company limits the amount of credit exposure with any one financial
institution and believes that no significant concentration of credit risk exists
with respect to cash investments.
D-8
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash, cash equivalents and accounts
receivable. The Company's accounts receivable are derived from revenue earned
from customers located in the U.S. The Company maintains an allowance for
doubtful accounts receivable based upon the expected collectibility of accounts
receivable.
For the year ended December 31, 2000, two customers accounted for 26.6% and
21.5% of net revenues, respectively. Additionally, at December 31, 2000, these
customers accounted for 11.3% and 3.1% of net accounts receivable, respectively.
The Company relies primarily on one supplier for network services. The loss
of this supplier could be detrimental to the Company's operations if there was a
significant delay in finding a replacement supplier.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the lesser of the asset life or lease term, if
applicable. The following are the estimated useful lives of the assets:
Furniture and fixtures...................................... 7 years
Office and computer equipment............................... 7 years
Leasehold improvements...................................... 3 years
Computer software........................................... 3 years
LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" ("SFAS 121"). SFAS 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets. Through December 31, 2000,
the Company had recorded no impairment of long-lived assets.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123").
SOFTWARE DEVELOPMENT COSTS
Costs related to the development of internal use software are capitalized in
accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". Capitalized software
is amortized on a straight-line basis over 3 years.
D-9
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company records deferred taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS No. 109").
SFAS 109 requires recognition of deferred tax assets and liabilities for
temporary differences between the tax bases of assets and liabilities and the
amounts at which they are carried in the financial statements, based upon the
enacted tax rates in effect for the year in which the differences are expected
to reverse. A valuation allowance is established when necessary to reduce
deferred tax assets to the amount expected to be realized.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," ("SFAS 133"). SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that exists.
The Company will adopt SFAS 133 in the first quarter of 2001. The Company does
not currently hold derivative instruments or engage in hedging activities.
Accordingly, the adoption of SFAS 133 is not expected to have a material effect
on the Company's financial position or results of operations.
2. BALANCE SHEET COMPONENTS
DECEMBER 31, 2000
------------------
PROPERTY AND EQUIPMENT
Computer equipment under capital leases................... $ 295,050
Computer equipment and software........................... 285,574
Telecommunications network equipment...................... 87,540
Leasehold improvements.................................... 86,474
Furniture and fixtures.................................... 63,429
---------
818,067
Less: Accumulated depreciation............................ (150,475)
---------
$ 667,592
=========
D-10
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
2. BALANCE SHEET COMPONENTS (CONTINUED)
Accumulated depreciation of computer equipment under capital leases totaled
$34,419 at December 31, 2000.
DECEMBER 31, 2000
------------------
DEFERRED COSTS
Installation costs........................................ $ 207,719
Less: Accumulated amortization............................ (171,063)
---------
$ 36,656
=========
Capitalized costs related to the network service provider installation are
being amortized on a straight-line basis over the three year life of the service
contract.
DECEMBER 31,
2000
-------------
ACCRUED LIABILITIES:
Payroll and related expenses.............................. $116,028
Service fees and installation costs....................... 58,574
Service provider expenses................................. 55,093
Other..................................................... 21,287
--------
$250,982
========
3. INCOME TAXES
The Company recognized no income tax benefit from its net loss for the year
ended December 31, 2000.
Deferred tax assets and liabilities consist of the following:
DECEMBER 31,
2000
-------------
DEFERRED TAX ASSETS:
Net operating loss carryforwards.......................... $ 2,753,000
Accruals and reserves..................................... 79,000
-----------
2,832,000
===========
Net deferred tax asset...................................... 2,832,000
Valuation allowance......................................... (2,832,000)
-----------
$ --
===========
Management believes that, based on a number of factors, it is more likely
than not that the net deferred tax asset will not be utilized. Therefore, a full
valuation allowance has been recorded at December 31, 2000.
D-11
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
3. INCOME TAXES (CONTINUED)
At December 31, 2000, the Company had approximately $7,379,500 of federal
and state net operating loss carryforwards available to offset future taxable
income which expire in varying amounts beginning in 2020. Under the Tax Reform
Internal Revenue Code regulations, the amounts of and benefits from net
operating loss carryforwards may be limited in certain circumstances. Events
which cause limitations in the amount of net operating losses that the Company
may utilize in any one year include, but are not limited to, a cumulative
ownership change of more than 50%, as defined, over a three year period.
4. BORROWINGS
NOTE PAYABLE
The Company has a note payable to Counsel, a related party (see Note 9).
Effective July 2000, Counsel managed certain aspects of the Company's business
based on a preliminary acquisition agreement. The note is collateralized by
accounts receivable and intangible assets. The Revolving Loan Agreement
("Agreement") allows Counsel to make periodic loans to the Company capped at an
aggregate principal amount of $10,000,000. All principal and interest
outstanding incurs interest that is compounded quarterly at a rate of
10 percent per annum. No interest has been paid on the note as of December 31,
2000. The Agreement terminates upon the earlier of:
1) The closing of the equity financing in respect of the asset purchase
transaction between PT-1 Communications, Inc. and Counsel,
2) or April 5, 2002.
As of December 31, 2000, the PT-1 equity financing had not occurred. The
loan balance as of December 31, 2000 is $6,119,504, which includes accrued
interest of $253,406.
Under the Agreement, the Company is not required to maintain specific
financial covenants.
5. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through 2004. Upon inception,
the Company received a lease incentive payment of $875,000 under a certain
equipment lease, which is being amortized over the term of the related lease as
a reduction of rental expense. Total rent expense for the year ended
December 31, 2000 was $1,847,723, net of $382,932 of lease incentive
amortization. The Company recognizes rent expense as it is paid.
D-12
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments under noncancelable operating and capital
leases at December 31, 2000 are as follows:
CAPITAL OPERATING
YEAR ENDED DECEMBER 31, LEASES LEASES
- ----------------------- --------- ----------
2001.................................................. $ 235,025 $2,761,570
2002.................................................. 117,513 1,127,438
2003.................................................. -- 419,734
--------- ----------
Total minimum lease payments.......................... 352,538 $4,308,742
==========
Less: Amount representing interest.................... (57,488)
---------
Present value of capital lease obligations............ 295,050
Less: current portion................................. (185,140)
---------
Long-term portion of capital lease obligations.... $ 109,910
=========
Subsequent to December 31, 2000, the Company acquired additional equipment
under operating lease agreements which expire in 2004. Future minimum payments
under these leases are as follows:
YEAR ENDED DECEMBER 31,
- -----------------------
2001........................................................ $156,177
2002........................................................ 217,971
2003........................................................ 217,971
2004........................................................ 61,794
--------
$653,913
========
6. COMMON STOCK
The Company's Articles of Incorporation, as amended, authorize the Company
to issue 60,000,000 shares of stock consisting of 30,000,000 shares of Class A
Voting Common Stock with a par value of $0.001 per share, 10,000,000 shares of
Class B Non-Voting Common Stock with a par value of $0.001 per share, and
20,000,000 shares of Preferred Stock with a par value of $0.001 per share. As of
December 31, 2000, there were 20,246,000 shares of Class A Voting Common Stock
issued and outstanding and no shares of Class B Non-Voting Common Stock or
Preferred Stock issued or outstanding.
A portion of the shares previously sold are subject to a right of repurchase
by the Company (at the price paid by employees) subject to vesting, which is
generally over a four year period from the earlier of grant date or employee
hire date, as applicable, until vesting is complete. At December 31, 2000, there
were 24,000 shares subject to repurchase.
Effective March 31, 2000, the members of Intelligent Communications LLC,
(the "LLC") exchanged their membership interests for shares of Class A Common
Stock in Nexbell Communications, Inc. (a Delaware C-Corporation). The members
received stock in Nexbell Communications, Inc. in proportion to their ownership
interests in the LLC.
D-13
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
7. STOCK OPTIONS
In May 1999, the Company adopted the 1999 Stock Option Plan (the "1999
Plan"). The 1999 Plan provides for the granting of stock options to employees of
the Company. Options granted under the 1999 Plan are nonqualified stock options
(NSO).
Options under the 1999 Plan may be granted for periods of up to ten years
and at prices no less than 85% of the estimated fair value of the shares on the
date of grant as determined by the Board of Directors, provided, however, that
a) the exercise price of a NSO shall not be less than 100% and 85% of the
estimated fair value of the shares on the date of grant, respectively, and
b) the exercise price of a NSO granted to a 10% stockholder shall not be less
than 110% of the estimated fair value of the shares on the date of grant.
Options typically vest over three years. Unexercised options expire one year
from the date of vesting.
The following table sets forth the stock option activity:
YEAR ENDED
DECEMBER 31, 2000
--------------------
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
Options outstanding at January 1, 2000................... 2,130,000 $0.05
Options granted........................................ 44,000 1.00
Options exercised...................................... (144,000) 0.21
Options canceled....................................... (1,000) 1.00
---------
Outstanding at December 31, 2000......................... 2,029,000 $ .06
=========
Options exercisable at December 31, 2000................. 1,209,999
=========
The following table summarizes information on stock options outstanding:
OPTIONS OUTSTANDING AT
DECEMBER 31, 2000 OPTIONS EXERCISABLE AT
------------------------------------- DECEMBER 31, 2000
WEIGHTED -----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE (YEARS) PRICE OUTSTANDING PRICE
- ----------------------- ----------- ------------ -------- ----------- ---------
$0.05.................... 2,010,000 3 years $ .05 1,209,999 $0.05
1.00..................... 19,000 1.5 years 1.00 -- 1.00
--------- ---------
$0.05 to 1.00............ 2,029,000 2.9 years $ .06 1,209,999 $0.06
========= =========
As permitted under APB No. 25, no compensation cost was recognized in the
statement of operations for the Company's outstanding stock options. Had
compensation cost for the Company's stock-based compensation plan been
recognized ratably over the options' vesting periods, in accordance with
SFAS 123, the Company's pro forma net loss would have been $6,195,661 for the
year ended December 31, 2000.
D-14
NEXBELL COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2000
7. STOCK OPTIONS (CONTINUED)
The weighted-average fair value of options granted during the year ended
December 31, 2000 was $0.12. Option grant date fair values were determined using
a Black-Scholes option pricing model. The following table summarizes the
underlying assumptions used.
Risk-free interest rate..................................... 6.27%
Expected stock price volatility............................. 0
Expected dividend yield..................................... 0
Expected option term........................................ 2 years
Due to a pending merger agreement with WebToTel, Inc., dated August 7, 2000,
all employees were given the opportunity to exercise their options immediately.
Several Company employees exercised their options, acquiring 144,000 shares for
$30,000. The Company allowed the employees to exercise their options utilizing
non-recourse notes receivable which are due on demand, with no interest.
In accordance with APB No. 25, the Company recognized a compensation charge
of $114,000 in the statement of operations for the incremental fair value of the
common stock at December 31, 2000 over the purchase price for those options
exercised with notes receivable. This compensation charge will continue to be
remeasured until such time as the notes receivable are paid or forgiven.
8. EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) defined contribution plan covering all
employees. Contributions made by the Company are determined annually by the
Board of Directors. Employer contributions under this plan amounted to $76,123
for the year ended December 31, 2000.
9. SUBSEQUENT EVENTS
On February 22, 2001, the Company was acquired by WebToTel, a subsidiary of
Counsel.
On April 17, 2001, WebToTel and the Company were acquired by I-Link
Corporation, a company controlled by Counsel.
D-15
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect to the merger on April 16, 2001 of
WebToTel, Inc. ("WebToTel") and it's subsidiary Nexbell Communications Inc.
("Nexbell") with I-Link Incorporated ("I-Link"). Effective March 2001, I-Link
became a majority owned subsidiary of Counsel Corporation ("Counsel"). As a
result of the transaction, I-Link, WebToTel and Nexbell were under common
control of Counsel at the time of I-Link's merger with WebToTel. WebToTel
acquired Nexbell on February 22, 2001 and accounted for that acquisition using
the purchase method of accounting. The merger of I-Link and WebToTel has been
accounted for using WebToTel's purchase price allocated to the assets and
liabilities of Nexbell.
The unaudited pro forma combined condensed balance sheet as of March 31,
2001 gives effect to the merger as if it had occurred on March 31, 2001, and
combines the historical consolidated balance sheet of I-Link and the historical
consolidated balance sheets of WebToTel and Nexbell as of such date.
The unaudited pro forma combined condensed statements of operations combine
the historical consolidated statements of operations of I-Link, WebToTel and
Nexbell as if the merger had occurred as of January 1, 2000. The unaudited pro
forma combined condensed statement of operations for the three months ended
March 31, 2001 and for the year ended December 31, 2000 combines the historical
consolidated statement of operations of I-Link with the historical consolidated
statements of operations of WebToTel and Nexbell for the three months ended
March 31, 2001 and for the year ended December 31, 2000.
Unaudited pro forma combined condensed financial information is presented
for illustrative purposes only and is not necessarily indicative of the
financial position or results of operations that would have actually been
reported had the merger occurred at the beginning of the periods presented, nor
is it necessarily indicative of future financial position or results of
operations. These unaudited pro forma combined condensed financial statements
are based upon the respective historical consolidated financial statements of
I-Link, WebToTel and Nexbell and notes thereto. These unaudited pro forma
combined condensed financial statements do not incorporate, nor do they assume,
any benefits from cost savings or synergies of operations of the combined
company.
D-16
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 2001
I-LINK NEXBELL WEBTOTEL ADJUSTMENTS PRO FORMA
------------- ----------- ----------- ------------ -------------
ASSETS
Current assets:
Cash....................................... $ 2,701,648 $ 248,534 -- -- $ 2,950,182
Accounts receivable, net................... 1,851,182 462,350 -- -- 2,313,532
Other current assets....................... 352,802 103,583 $ 146,506 -- 602,891
------------- ----------- ----------- ------------ -------------
Total current assets..................... 4,905,632 814,467 146,506 -- 5,866,605
------------- ----------- ----------- ------------ -------------
Furniture, fixtures, equipment and software,
net........................................ 10,133,925 799,912 -- -- 10,933,837
Other assets:
Intangibles, net........................... 3,391,489 -- 9,136,426 -- 12,527,915
Deferred costs............................. -- -- 748,838 -- 748,838
Certificates of deposit--restricted........ 220,000 -- -- -- 220,000
Other...................................... 676,619 47,331 -- -- 723,950
------------- ----------- ----------- ------------ -------------
$ 19,327,665 $ 1,661,710 $10,031,770 -- $ 31,021,145
============= =========== =========== ============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable........................... $ 2,759,821 $ 167,133 -- -- $ 2,926,954
Accrued liabilities........................ 3,698,861 240,139 -- -- 3,939,000
Unearned revenue........................... 14,885,541 504,705 -- -- 15,390,246
Accrued interest on note payable to related
party.................................... -- -- $ 55,623 $ (55,623)(A) --
Current portion lease incentive............ -- 159,555 -- -- 159,555
Note payable to related party.............. -- -- 2,023,373 (2,023,373)(A) --
Current portion of long-term debt.......... 2,267,060 -- -- -- 2,267,060
Current portion of obligations under
capital leases........................... 1,465,091 140,887 -- -- 1,605,978
------------- ----------- ----------- ------------ -------------
Total current liabilities................ 25,076,374 1,212,419 2,078,996 (2,078,996) 26,288,793
Notes payable................................ 785,634 -- -- -- 785,634
Note payable--related party.................. 4,120,664 8,226,751 -- $(8,226,751)(A) 4,120,664
Deposits..................................... -- 260,028 -- -- 260,028
Obligations under capital leases............. 304,296 109,910 -- -- 414,206
Unearned revenue............................. 416,667 -- -- -- 416,667
------------- ----------- ----------- ------------ -------------
Total liabilities............................ 30,703,635 9,809,108 2,078,996 (10,305,747) 32,285,992
------------- ----------- ----------- ------------ -------------
Stockholders equity (deficit):
Preferred stock............................ 100,180 -- -- -- 100,180
Common stock............................... 665,783 20,246 64,365 37,569 (A) 787,963
Additional paid-in capital................. 114,164,734 1,174,854 9,081,517 1,677,895 (A) 126,099,000
Notes receivable from stockholders......... -- (30,000) -- -- (30,000)
Accumulated deficit........................ (126,306,667) (9,312,498) (1,193,108) 8,590,283 (A) (128,221,990)
------------- ----------- ----------- ------------ -------------
Total stockholders' equity (deficit)..... (11,375,970) (8,147,398) 7,952,774 10,305,747 (1,264,847)
------------- ----------- ----------- ------------ -------------
$ 19,327,665 $ 1,661,711 $10,031,770 -- $ 31,021,145
============= =========== =========== ============ =============
The accompanying notes are an integral part of these unaudited proforma combined
condensed financial statements
D-17
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2001
I-LINK NEXBELL WEBTOTEL ADJUSTMENTS PRO FORMA
------------ ----------- --------- ----------- -----------
Revenues:
Telecommunication services............. $ 4,127,856 $ 800,045 -- -- $ 4,927,901
Technology licensing and development... 1,436,899 -- -- -- 1,436,899
Other.................................. 666,583 -- -- -- 666,583
------------ ----------- --------- ---------- -----------
6,231,338 800,045 7,031,383
Operating costs and expenses:
Telecommunication network expense...... 5,728,641 1,680,501 -- -- 7,409,142
Selling, general and administrative.... 3,579,781 496,268 -- -- 4,076,049
Provision for doubtful accounts........ 52,283 95,063 -- -- 147,346
Depreciation and amortization.......... 1,484,133 41,546 -- $ 456,821(B) 1,982,500
Research and development............... 1,066,758 -- -- 1,066,758
------------ ----------- --------- ---------- -----------
Total operating costs and expenses... 11,911,596 2,313,378 456,821 14,681,795
Operating loss........................... (5,680,258) (1,513,333) -- (456,821) (7,650,412)
Other income (expense):
Interest expense....................... (266,203) (185,764) $ (31,906) -- (483,873)
Interest and other income.............. 29,803 2,299 -- -- 32,102
Loss on sale of assets................. -- (50,620) -- -- (50,620)
------------ ----------- --------- ---------- -----------
Total other income (expense)......... (236,400) (234,085) (31,906) -- (502,391)
------------ ----------- --------- ---------- -----------
Net loss............................. $ (5,916,658) $(1,747,418) $ (31,906) $ (456,821) $(8,152,803)
============ =========== ========= ========== ===========
Calculation of net income per common
share:
Net loss................................. $ (5,916,658) $(1,747,418) $ (31,906) $ (456,821) $(8,152,803)
Dividends accrued and paid on Class M
redeemable preferred stock............. (269,027) -- -- -- (269,027)
Net effect on retained earnings of
redemption and reissuance of Class M
and N preferred stock, including
beneficial conversion features......... 15,512,473 -- -- -- 15,512,473
Cumulative preferred stock dividends not
paid in current year................... (10,947) -- -- -- (10,947)
------------ ----------- --------- ---------- -----------
Income (loss) applicable to common
stock.............................. $ 9,315,841 $(1,747,418) $ (31,906) $ (456,821) $ 7,079,696
============ =========== ========= ========== ===========
Basic and diluted weighted average shares
outstanding............................ 47,079,855 -- -- 17,454,333(C) 64,534,188
============ =========== ========= ========== ===========
Net income per common share--basic and
diluted................................ $ 0.20 $ 0.11
============ ===========
The accompanying notes are an integral part of these unaudited proforma
combined condensed financial statements
D-18
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
I-LINK NEXBELL WEBTOTEL ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ----------- ------------
Revenues:
Telecommunication services...... $ 18,300,548 $ 1,455,456 -- -- $ 19,756,004
Marketing services.............. 463,740 -- -- -- 463,740
Technology licensing and
development................... 8,972,828 -- -- -- 8,972,828
Other........................... 2,667,039 -- -- -- 2,667,039
------------ ----------- ----------- ----------- ------------
30,404,155 1,455,456 -- -- 31,859,611
Operating costs and expenses:
Telecommunication network
expense....................... 24,958,320 4,048,943 -- -- 29,007,263
Marketing services.............. 456,354 -- -- -- 456,354
Selling, general and
administrative................ 18,353,731 2,788,040 -- -- 21,141,771
Unsuccessful acquisition
costs......................... -- -- $ 1,137,485 -- 1,137,485
Provision for doubtful
accounts...................... 113,168 164,921 -- -- 278,089
Depreciation and amortization... 6,399,318 265,257 -- $ 1,800,573(B) 8,465,148
Research and development........ 4,220,333 -- -- -- 4,220,333
------------ ----------- ----------- ----------- ------------
Total operating costs and
expenses.................. 54,501,224 7,267,161 1,137,485 1,800,573 64,706,443
Operating loss.................... (24,097,069) (5,811,705) (1,137,485) (1,800,573) (32,846,832)
------------ ----------- ----------- ----------- ------------
Other income (expense):
Interest expense................ (1,502,676) (256,878) (23,718) -- (1,783,272)
Interest and other income....... 487,132 21,457 -- -- 508,589
Loss on sale of assets.......... -- (139,606) -- -- (139,606)
Settlement expense.............. (639,565) -- -- -- (639,565)
------------ ----------- ----------- ----------- ------------
Total other income
(expense)................. (1,655,109) (375,027) (23,718) -- (2,053,854)
------------ ----------- ----------- ----------- ------------
Net loss.................... $(25,752,178) $(6,186,732) $(1,161,203) $(1,800,573) $(34,900,686)
============ =========== =========== =========== ============
Calculation of net loss per common
share:
Net loss.......................... $(25,752,178) $(6,186,732) $(1,161,203) $(1,800,573) $(34,900,686)
Cumulative preferred stock
dividends not paid in current
year............................ (1,646,818) -- -- -- (1,646,818)
------------ ----------- ----------- ----------- ------------
Loss applicable to common
stock..................... $(27,398,996) $(6,186,732) $(1,161,203) $(1,800,573) $(36,547,504)
============ =========== =========== =========== ============
Basic and diluted weighted average
shares outstanding.............. 26,669,058 -- -- 17,454,333(C) 44,123,391
============ =========== =========== =========== ============
Net loss per common share--basic
and diluted..................... $ (1.03) $ (0.83)
============ ============
The accompanying notes are an integral part of these unaudited pro forma
combined condensed financial statements
D-19
I-LINK INCORPORATED
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION:
On April 17, 2001, I-Link Incorporated ("I-Link") completed the merger with
WebToTel, Inc ("WebToTel") and its subsidiary Nexbell Communications Inc.
("Nexbell"). WebToTel was an entity established to acquire telecommunication
companies. Nexbell is a wholesale network telecommunications provider. I-Link
acquired WebToTel and its subsidiary Nexbell for consideration consisting of
17,454,333 shares of I-Link's common stock and acquisition costs of
approximately $175,000. Each share of WebToTel stock was exchanged for .1313
shares of I-Link common stock. This transaction was recorded using book value
purchase accounting (similar to the pooling-of-interests method of accounting)
as all three entities were under common control of Counsel Communications LLC (a
wholly owned subsidiary of Counsel Corporation) at the time of the merger. The
merger was a tax-free reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended.
NOTE 2--PRO FORMA ADJUSTMENTS:
The following pro forma adjustments were applied to the historical
consolidated financial statements of I-Link, WebToTel and Nexbell to arrive at
the unaudited pro forma combined condensed financial information.
(A) Adjustment relates to the issuance of 17,454,333 shares of I-Link
common stock in exchange for all of the outstanding stock of WebToTel. Includes
adjustment for note payable from WebToTel ($2,023,373) to Counsel and related
accrued interest ($55,623) which were converted into capital of WebToTel in
April 2001. Also includes an adjustment for a note payable from Nexbell to
Counsel ($8,226,751) which was converted into capital in April 2001 just prior
to I-Link's acquisition of WebToTel also in April 2001. Adjustment also includes
the elimination of Nexbell's equity accounts as of March 31, 2001.
(B) Pro forma adjustment to record the amortization of the intangible asset
recorded in connection with WebToTel's acquisition of Nexbell in February 2001.
Adjustment reflects the amorization of the intangible as if the acquisition had
occurred on January 1, 2000.
(C) Adjustment to weighted average shares outstanding to reflect I-Link
shares issued (17,454,333) upon acquisition of WebToTel and Nexbell.
NOTE 3--PRO FORMA NET INCOME (LOSS) PER SHARE:
Basic and diluted weighted average shares outstanding were calculated based
upon the historical basic and diluted weighted average shares outstanding of
I-Link for each period, increased by the shares I-Link issued upon acquisition
of WebToTel and Nexbell which assumes the shares had been outstanding during
each period presented. As of December 31, 2000, the companies are in a net loss
position on a pro forma combined condensed basis, inclusion of potential common
stock in the computation of pro forma net loss per share is anti-dilutive;
therefore, potential common stock is excluded from the weighted average shares
outstanding. As of March 31, 2001, all potential common stock was anti-dilutive
and therefore excluded from weighted average shares outstanding.
D-20
PROXY
ANNUAL MEETING OF STOCKHOLDERS OF I-LINK INCORPORATED
SEPTEMBER 7, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Gary J. Wasserson, Henry Y.L. Toh, Hal B. Heaton, and Samuel L. ShimerAllan C. Silber, Albert Reichmann and each or any of them proxies, with power of substitution, to vote all shares of the undersigned at the annual meetingAnnual Meeting of stockholders to be held on September 7,November 26, 2003 at 10:0010 a.m. local time at Marriott
Courtyard Hotel, 10701 South Holiday ParkDoubleTree Golf Resort, 14455 Penasquitos Drive, Sandy, Utah 84070,San Diego, California 92129, or at any adjournment thereof, upon the matters set forth in the Proxy Statement for such meeting, and in their discretion, on such other business as may properly come before the meeting.
(CONTINUED, AND TO BE DATED AND SIGNED ON OTHER SIDE)
/X/ Please mark your
votes as in this
example using
dark ink only.
1. | TO ELECT TWO CLASS | ||||||||||||
o | FOR THE | o | WITHHOLD AUTHORITY to vote for the nominee listed below |
(INSTRUCTION: To withhold authority to vote for a nominee strike a line through the nominee's name | ||||||||||
| SAMUEL L. SHIMER STEPHEN A. WEINTRAUB | ||||||||||
2. | APPROVE AN AMENDMENT TO I-LINK'S ARTICLES OF INCORPORATION | |||||||||
o | FOR | o | AGAINST | o | ABSTAIN | |||||
3. | APPROVE AN AMENDMENT TO I-LINK'S | |||||||||
o | FOR | o | AGAINST | o | ABSTAIN | |||||
4. | APPROVE A 1-FOR-20 REVERSE STOCK SPLIT OF I-LINK'S COMMON | |||||||||
o | FOR | o | AGAINST | o | ABSTAIN | |||||
5. | APPROVE THE | |||||||||
o | FOR | o | AGAINST | o | ABSTAIN | |||||
6. | TRANSACT ANY OTHER BUSINESS THAT MAY PROPERLY BE PRESENTED AT THE | |||||||||
o | FOR | o | AGAINST | o | ABSTAIN | |||||
Dated: | |||
Signature | |||
Dated: | |||
Signature, if held jointly |
NOTE: When shares are held by joint tenants, both should sign. Persons signing as Executor, Administrator, Trustee, etc. should so indicate. Please sign exactly as the name appears on the proxy.